8-K: Current report filing
Published on December 27, 2002
Table of Contents
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
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 26, 2002
TTM TECHNOLOGIES, INC.
(Exact Name of Registrant as Specified in its Charter)
| Washington (State or Other Jurisdiction of Incorporation) |
0-31285 (Commission File Number) |
91-1033443 (IRS Employer Identification No.) |
| 17550 N.E. 67th COURT REDMOND, WASHINGTON (Address of principal executive offices) |
98052 (Zip Code) |
Registrants telephone number, including area code: (425) 883-7575
| Item 2. Acquisition of Assets | ||||||||
| Item 7. Financial Statements, Pro Forma Financial Information, and Exhibits. | ||||||||
| SIGNATURES | ||||||||
| EXHIBIT INDEX | ||||||||
| EX-10.15 | ||||||||
Table of Contents
Item 2. Acquisition of Assets
On December 26, 2002, TTM Technologies, Inc. (TTM) acquired all of the outstanding capital stock of Honeywell Advanced Circuits, Inc. (HAC), an indirect subsidiary of Honeywell International, Inc. HAC is a printed circuit board manufacturer with an expertise in high layer counts and specialty materials. Its major customers include Cisco Systems, Sun Microsystems, IBM, Celestica, and Solectron. The purchase price was one dollar. The total cost of the acquisition is approximately $2 million including fees and expenses.
Item 7. Financial Statements, Pro Forma Financial Information, and Exhibits.
| (a) | Financial Statements of Business Acquired. | |
| Independent accountants report of PricewaterhouseCoopers LLP | ||
| Combined Balance Sheets as of September 30, 2002 and December 31, 2001 | ||
| Combined Statements of Operations for the Nine Months Ended September 30, 2002, and for the Years Ended December 31, 2001 and 2000 | ||
| Combined Statements of Cash Flows for the Nine Months Ended September 30, 2002, and for the Years Ended December 31, 2001 and 2000 | ||
| Combined Statements of Changes in Honeywell Investment for the Nine Months Ended September 30, 2002 and the Years Ended December 31, 2001 and 2000 | ||
| Notes to consolidated financial statements | ||
| (b) | Pro Forma Financial Information. |
As of the date of the filing of this Current Report on Form 8-K, it is impracticable for the Registrant to provide the pro forma financial information required by this Item 7(b). In accordance with Item 7(b)(2) of Form 8-K, such financial statements shall be filed by amendment to this Form 8-K no later than 60 days after the date this Current Report must be filed.
| (c) | Exhibits. |
| Exhibit No. | Description of Exhibit | |
| 10.15 | Stock Purchase Agreement, dated as of December 24, 2002, between Honeywell Electronic Materials, Inc., a Washington corporation and TTM Technologies, Inc., a Washington corporation. |
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Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| TTM TECHNOLOGIES, INC. | ||||
| Date: December 26, 2002 | By: | /s/ Stacey M. Peterson | ||
|
Name: Title: |
Stacey M. Peterson Chief Financial Officer and Secretary |
|||
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Table of Contents
Honeywell International Inc.
Advanced Circuits
Combined Financial Statements
September 30, 2002 and December 31, 2001 and
2000
Table of Contents
Honeywell International Inc.
Advanced Circuits
Index to Combined Financial Statements
September 30, 2002 and December 31, 2001 and 2000
| Page | ||||
Report of Independent Accountants |
F-1 | |||
Combined Financial Statements: |
||||
Combined Balance Sheets as of September 30, 2002 and December 31, 2001 |
F-2 | |||
Combined Statements of Operations for the Nine Months Ended
September 30, 2002 and the Years Ended December 31, 2001 and 2000 |
F-3 | |||
Combined Statements of Cash Flows for the Nine Months Ended
September 30, 2002 and the Years Ended December 31, 2001 and 2000 |
F-4 | |||
Combined Statements of Changes in Honeywell Investment for the Nine
Months Ended
September 30, 2002 and the Years Ended December 31, 2001 and 2000 |
F-5 | |||
Notes to Combined Financial Statements |
F6-24 | |||
Table of Contents
Report of Independent Accountants
To the Board of Directors and Management of
Honeywell International Inc.
We have audited the accompanying combined balance sheets of the Advanced Circuits division (the Business) of the Specialty Materials business unit of Honeywell International Inc. (Honeywell) as of September 30, 2002 and December 31, 2001 and the related combined statements of operations and of cash flows for the nine months ended September 30, 2002 and for each of the two years in the period ended December 31, 2001. These financial statements are the responsibility of Honeywells management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the accompanying combined financial statements referred to above present fairly, in all material respects, the financial position of the Business at September 30, 2002 and December 31, 2001, and the results of its operations and its cash flows for the nine months ended September 30, 2002 and for each of the two years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States of America.
As described in Note 2 to the combined financial statements, effective January 1, 2002, the Business adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangibles.
The Business, as disclosed in Note 1 and Note 3 to the accompanying combined financial statements, is consolidated into Honeywell and has extensive transactions and relationships with Honeywell and its subsidiaries and affiliates, including financing provided by Honeywell necessary to support the continued operations of the Business. Because of these relationships, it is possible that the terms of these transactions are not the same as those that would result from transactions among wholly unrelated parties.
/s/ PricewaterhouseCoopers, LLP
December 9, 2002
F - 1
Table of Contents
Honeywell International Inc.
Advanced Circuits
Combined Balance Sheets
As of September 30, 2002 and December 31, 2001
(Dollars in thousands)
| September 30, | December 31, | |||||||||
| 2002 | 2001 | |||||||||
Assets |
||||||||||
Current assets: |
||||||||||
Cash and cash equivalents |
$ | 1 | $ | 28 | ||||||
Accounts receivable, net |
18,379 | 26,277 | ||||||||
Inventories, net |
14,052 | 14,974 | ||||||||
Prepaid expenses and other current assets |
265 | 410 | ||||||||
Assets held for sale |
10,615 | | ||||||||
Total current assets |
43,312 | 41,689 | ||||||||
Investments |
833 | 933 | ||||||||
Intangible pension asset |
667 | 1,365 | ||||||||
Capitalized software, net |
575 | 679 | ||||||||
Property, plant and equipment, net |
40,535 | 109,730 | ||||||||
Goodwill, net |
| 35,920 | ||||||||
Total assets |
$ | 85,922 | $ | 190,316 | ||||||
Liabilities and Honeywell Investment |
||||||||||
Current liabilities: |
||||||||||
Accounts payable |
10,326 | 15,877 | ||||||||
Accrued payroll and related expenses |
4,642 | 5,047 | ||||||||
Customer advances |
19,003 | 24,003 | ||||||||
Accrued severance and other exit costs |
13,105 | 3,426 | ||||||||
Other accrued liabilities |
6,357 | 2,156 | ||||||||
Total current liabilities |
53,433 | 50,509 | ||||||||
Accrued pension obligation |
7,780 | 6,634 | ||||||||
Accrued postretirement obligation |
1,934 | 1,731 | ||||||||
Long term note payable |
| 76 | ||||||||
Total liabilities |
63,147 | 58,950 | ||||||||
Commitments and contingencies (Note 15) |
||||||||||
Honeywell investment |
22,775 | 131,366 | ||||||||
Total liabilities and Honeywell investment |
$ | 85,922 | $ | 190,316 | ||||||
The accompanying notes are an integral part of these financial statements.
F - 2
Table of Contents
Honeywell International Inc.
Advanced Circuits
Combined Statements of Operations
For the Nine Months Ended September 30, 2002 and For the Years Ended
December 31, 2001 and 2000
(Dollars in thousands)
| September 30, | December 31, | December 31, | |||||||||||
| 2002 | 2001 | 2000 | |||||||||||
Sales |
$ | 103,911 | $ | 232,180 | $ | 350,030 | |||||||
Sales related parties |
17 | | 2,006 | ||||||||||
Total sales |
103,928 | 232,180 | 352,036 | ||||||||||
Cost of goods sold |
131,021 | 242,891 | 316,438 | ||||||||||
Selling, general and administrative expense |
17,745 | 35,078 | 31,057 | ||||||||||
Severance, impairment and other exit charges |
67,957 | 36,405 | | ||||||||||
Income/(loss) from operations |
(112,795 | ) | (82,194 | ) | 4,541 | ||||||||
Interest expense |
(3,661 | ) | (5,485 | ) | (3,672 | ) | |||||||
Interest income |
| 51 | 494 | ||||||||||
Income/(loss) before income taxes
and cumulative effect of accounting change |
(116,456 | ) | (87,628 | ) | 1,363 | ||||||||
Income tax provision |
| (4,996 | ) | (1,279 | ) | ||||||||
Income/(loss) before cumulative
effect of accounting change |
(116,456 | ) | (92,624 | ) | 84 | ||||||||
Cumulative effect of accounting
change |
(35,920 | ) | | | |||||||||
Net income/(loss) |
$ | (152,376 | ) | $ | (92,624 | ) | $ | 84 | |||||
The accompanying notes are an integral part of these financial statements.
F - 3
Table of Contents
Honeywell International Inc.
Advanced Circuits
Combined Statements of Cash Flows
For the Nine Months Ended September 30, 2002 and For the Years Ended
December 31, 2001 and 2000
(Dollars in thousands)
| September 30, | December 31, | December 31, | ||||||||||||||
| 2002 | 2001 | 2000 | ||||||||||||||
Cash flows from operating activities: |
||||||||||||||||
Net income/(loss) |
$ | (152,376 | ) | $ | (92,624 | ) | $ | 84 | ||||||||
Adjustments to reconcile net income/(loss) to cash
provided by operating activities: |
||||||||||||||||
Depreciation and amortization |
11,546 | 27,357 | 26,398 | |||||||||||||
Goodwill impairment charge |
35,920 | | | |||||||||||||
Asset impairment charges |
48,870 | 23,543 | | |||||||||||||
Changes in assets and liabilities: |
||||||||||||||||
Accounts receivable |
7,898 | 27,074 | (19,356 | ) | ||||||||||||
Inventories |
922 | 12,077 | (5,126 | ) | ||||||||||||
Prepaid expenses and other current assets |
145 | (133 | ) | 462 | ||||||||||||
Customer advances |
(5,000 | ) | (20,997 | ) | 45,000 | |||||||||||
Accounts payable |
(7,061 | ) | (16,960 | ) | (2,495 | ) | ||||||||||
Other accrued liabilities |
13,475 | (1,020 | ) | (1,214 | ) | |||||||||||
Pension and postretirement obligations |
2,047 | 4,298 | 2,702 | |||||||||||||
Deferred income taxes |
| 4,996 | (1,164 | ) | ||||||||||||
Additional minimum pension liability |
573 | (1,471 | ) | (21 | ) | |||||||||||
Cash provided by/(used in) operating activities |
(43,041 | ) | (33,860 | ) | 45,270 | |||||||||||
Cash flows from investing activities: |
||||||||||||||||
Capital expenditures |
(4,669 | ) | (15,873 | ) | (28,206 | ) | ||||||||||
Disposals of fixed assets |
3,037 | 4,158 | 2,841 | |||||||||||||
Cash used in investing activities |
(1,632 | ) | (11,715 | ) | (25,365 | ) | ||||||||||
Cash flows from financing activities: |
||||||||||||||||
Notes payable repayments |
(76 | ) | (4 | ) | (10 | ) | ||||||||||
Increase (decrease) in book overdrafts |
1,510 | (3,456 | ) | (13,942 | ) | |||||||||||
Honeywell investment |
43,212 | 45,380 | (2,270 | ) | ||||||||||||
Cash provided by/(used in) financing activities |
44,646 | 41,920 | (16,222 | ) | ||||||||||||
Net decrease in cash and cash equivalents |
(27 | ) | (3,655 | ) | 3,683 | |||||||||||
Cash and cash equivalents, beginning of period |
28 | 3,683 | | |||||||||||||
Cash and cash equivalents, end of period |
$ | 1 | $ | 28 | $ | 3,683 | ||||||||||
Supplemental cash flow disclosure: |
||||||||||||||||
Interest paid |
$ | 4 | $ | 6 | $ | 6 | ||||||||||
The accompanying notes are an integral part of these financial statements.
F - 4
Table of Contents
Honeywell International Inc.
Advanced Circuits
Combined Statements of Changes in Honeywell Investment
For the Nine Months Ended September 30, 2002 and For the Years Ended
December 31, 2001 and 2000
(Dollars in thousands)
Honeywell investment, January 1, 2000 |
$ | 182,288 | ||||||
Net income |
$ | 84 | ||||||
Additional minimum pension liability |
(21 | ) | ||||||
Comprehensive income |
63 | |||||||
Intercompany activity |
(2,270 | ) | ||||||
Honeywell investment, December 31, 2000 |
180,081 | |||||||
Net loss |
(92,624 | ) | ||||||
Additional minimum pension liability |
(1,471 | ) | ||||||
Comprehensive income |
(94,095 | ) | ||||||
Intercompany activity |
45,380 | |||||||
Honeywell investment, December 31, 2001 |
131,366 | |||||||
Net loss |
(152,376 | ) | ||||||
Additional minimum pension liability |
573 | |||||||
Comprehensive income |
(151,803 | ) | ||||||
Intercompany activity |
43,212 | |||||||
Honeywell investment, September 30, 2002 |
$ | 22,775 | ||||||
F - 5
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| 1. | Basis of Presentation | |
| Advanced Circuits (the Business) is a division of the Specialty Materials business unit of Honeywell International Inc. (Honeywell). The Business was acquired by AlliedSignal (now Honeywell) as part of the acquisition of Johnson Matthey Electronics, a division of Johnson Matthey Plc, in August of 1999 (the Acquisition). Johnson Matthey Electronics, including both the Advanced Circuits and the Wafer Fabrication Materials businesses, was acquired for approximately $655 million in cash. The acquisition was accounted for under the purchase method of accounting. | ||
| The Business is headquartered in Chippewa Falls, WI where the Business currently operates its one production facility. Prior to restructuring the operations in 2001 and 2002 (see note 5), the Business maintained additional production facilities. In 2000, the Business also maintained plants in Roseville, MN and Buffalo, MN and performed other production work in Hopkins, MN, St. Louis Park, MN, and Minnetonka, MN. In 2001, the St. Louis Park facility was completely shut down and production activities at the Minnetonka location were significantly reduced. In 2002, the Business shut down its facilities in Roseville, Buffalo, Hopkins, and Minnetonka. | ||
| The Business manufactures and distributes products including printed circuit boards (PCBs), complex rigid PCBs, high-layer count/multilayer PCBs, and rapid prototype PCBs. The Business markets these products to manufacturers of computer equipment, telecommunication infrastructure equipment and networking equipment, and contract manufacturers. The business is located in the United States of America with some subcontractor manufacturing located in Taiwan. | ||
| These combined financial statements have been prepared as if the Business had operated as a stand-alone entity following carve-out guidance prescribed by the United States Securities and Exchange Commission and present the historical financial position and results of operations and cash flows of the Business previously included in the Honeywell consolidated financial statements. The financial information of the Business included herein is not necessarily indicative of its financial position and its results of operations and cash flows in the future, or of the results which would have been reported if the Business had operated as an unaffiliated enterprise. All transactions and balances between the Business and Honeywell (including other Honeywell business units) are herein referred to as related party transactions. | ||
| These combined financial statements have been prepared assuming that the Business will continue as a going concern. During the periods presented, the Business has experienced recurring losses and cash outflows from operations. The Business has received significant funding from its parent company, Honeywell. Honeywell management has committed to continue supporting the Business until such time that the Business is sold. | ||
| 2. | Summary of Significant Accounting Policies | |
| Use of Estimates The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions including those relating to inventory valuation, valuation of long-lived assets, including assets held for sale, recoverability of deferred tax assets and liabilities for severance |
F - 6
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| and exit costs, that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at period end and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. | ||
| Concentration of Credit Risk Financial instruments that potentially expose the Business to a concentration of credit risk consist primarily of accounts receivable. The Business does not require collateral from its customers. To minimize this risk, ongoing credit evaluations of customers financial condition are performed and a provision for uncollectible accounts is maintained. Sales to 5 individual customers comprised in excess of 10% of sales for the nine months ended September 30, 2002 or for the years ended December 31, 2001 or 2000. |
| Customer | 2002 | 2001 | 2000 | |||||||||
A |
31.3 | % | 20.2 | % | 17.7 | % | ||||||
B |
31.2 | % | 24.2 | % | 20.0 | % | ||||||
C |
4.4 | % | 15.0 | % | 28.0 | % | ||||||
D |
8.2 | % | 12.0 | % | 8.4 | % | ||||||
E |
6.2 | % | 12.3 | % | 2.2 | % | ||||||
| 81.3 | % | 83.7 | % | 76.3 | % | |||||||
| Financial Instruments The carrying value of the Businesss financial instruments, comprising cash and cash equivalents, accounts receivable, long-term borrowings, accounts payable and accrued liabilities, approximate their fair values. |
||
| Cash and Cash Equivalents Cash and cash equivalents include cash on hand and on deposit. |
||
| Inventories Inventories are valued at market, which is lower than average cost. Provisions have been recorded to reduce all slow-moving, obsolete, or unusable inventories to their estimated useful or scrap values. |
||
| Property, Plant and Equipment The Business obtained an external valuation of its property, plant and equipment as of August 1999, the date of the Acquisition, and recorded all property, plant, and equipment at their respective fair values at that time. Property, plant and equipment acquired subsequent to the Acquisition is recorded at cost. Property, plant and equipment is depreciated over the estimated useful lives of the assets using the straight-line method. Upon retirement or sale, the cost of assets disposed of and the related accumulated depreciation is removed from the accounts and any resulting gain or loss is credited or charged to income. Repairs and maintenance costs are expensed as incurred. |
F - 7
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| Goodwill Goodwill represents the excess purchase price over the fair value of identifiable net assets of acquired businesses accounted for as purchases and prior to January 1, 2002 was amortized on a straight-line basis over 20 years. |
||
| In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, beginning January 1, 2002, the Business ceased amortizing goodwill. The Business recorded goodwill amortization expense of $2,035 in 2001 and 2000. Under the provisions of SFAS No. 142, goodwill is no longer amortized but rather tested for impairment at least annually and upon the occurrence of a triggering event. Under SFAS No. 142, goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its estimated fair value. The Business operates in one operating segment and, therefore, represents one reporting unit. The SFAS No. 142 methodology for determining goodwill impairment described above differs from the Businesss previous policy of using undiscounted cash flows on an enterprise-wide basis to determine if goodwill is recoverable. | ||
| The following table sets forth the Businesss results had SFAS No. 142 been applied to the prior-period financial statements presented herein: |
| December 31, | December 31, | |||||||
| 2001 | 2000 | |||||||
Reported net income/(loss) |
$ | (92,624 | ) | $ | 84 | |||
Add back: Goodwill amortization |
2,035 | 2,035 | ||||||
Adjusted net income/(loss) |
$ | (90,589 | ) | $ | 2,119 | |||
| Upon adoption of this standard effective January 1, 2002, the Business recorded a $35,920 charge to write off the carrying value of its goodwill reflected as a cumulative effect of a change in accounting principle in the accompanying Combined Statements of Operations. In calculating the impairment charge, the fair value of the impaired reporting unit was estimated using a discounted cash flow methodology. | ||
| Investments The Business has a 12.375% interest in the American Tax Credit Corporate Fund, L.P., a limited partnership organized to invest in other limited partnerships or limited liability companies. These other limited partnerships and limited liability companies own and operate apartment complexes that are expected to qualify for the federal housing tax credit. Following the guidance set forth by EITF No. 94-1 Accounting for Tax Benefits Resulting from Investments in Affordable Housing Projects, the Business accounts for this investment using the cost method of accounting. Under the cost method, the Business initially recorded the investment in the partnership at cost of contributed capital and amortizes any excess of the carrying amount of the investment over its estimated residual value during the periods in which tax credits are allocated to the Business. Annual amortization is based on the proportion of tax credits received in the current year to total estimated tax credits to be allocated to the Business. The investment is reviewed periodically for impairment. The carrying value of the investment was $833 and $933 as of September 30, 2002 and December 31, 2001, respectively. Amortization expense of $100, $133, and $133 was |
F - 8
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| included in Selling, general and administrative expenses for the nine months ended September 30, 2002 and for the years ended December 31, 2001 and 2000, respectively. | ||
| Long-Lived Assets In accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, management periodically evaluates the recoverability of the carrying amount of long-lived assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment has occurred when the undiscounted expected future cash flows derived from an asset are less than its carrying value. Impairment losses are measured as the amount by which the carrying value of an asset exceeds its fair value and are recognized in operating results. The Business also periodically evaluates the estimated useful lives of long-lived assets and periodically revises such estimates based on current events. |
||
| In October 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. SFAS No. 144 superseded SFAS No. 121, and the accounting and reporting provisions for the disposal of a segment of business contained in APB Opinion No. 30 Reporting the Effects of a Disposal of a Segment of a Business, and Extraordinary, Unusual, and Infrequently Occurring Events and Transactions. SFAS No. 144 established a single accounting model for long-lived assets to be disposed of by sale and broadened the presentation of discontinued operations. The Business adopted SFAS No. 144 effective January 1, 2002. Under SFAS No. 144, the Business periodically evaluates its long-lived assets for impairment, recognizes an impairment loss only if the carrying value of a long-lived asset is not recoverable from its undiscounted cash flows and measures the impairment loss as the difference between the carrying amount and the fair value of the asset. See Note 5. | ||
| Revenue Recognition Revenue is recognized when a written agreement exists, the product has been shipped, pricing is fixed or determinable and collection is reasonably assured. The Businesss customers include original equipment manufacturers and contract manufacturers. Shipping terms on direct product sales are FOB shipping point. Additionally, the Business uses subcontracted manufacturers for the production of certain printed circuit boards with less than 12 layers. In these cases, revenue is recognized when product is shipped from the subcontracted manufacturer to the customer. The Business acts as a principal in these transactions and records revenue on a gross basis. |
||
| The Business maintains agreements with several customers to operate an inventory hub at the customer site or at a third-party warehouse facility. As of September 30, 2002, the Business operated active hub agreements at 7 customer locations. According to the terms of the hub agreements, the Business agrees to ship inventory on a pre-determined frequency based on forecasts provided by the customer. The Business retains title to the inventory until it is pulled from the hub, at which time revenue is recognized. | ||
| Research, Development and Engineering Expenses Research, development and engineering costs for company-sponsored research and development projects are expensed as incurred and amounted to $1,755, $3,914 and $3,320 for the nine months ended September 30, 2002 and for the years ended December 31, 2001 and 2000, respectively. |
F - 9
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| Income Taxes The Business is included in the consolidated U.S. federal, state and local income tax returns of Honeywell. In preparing its combined financial statements, the Business has determined its tax provision on a separate return basis. Deferred tax liabilities or assets reflect the impact of temporary differences between amounts of assets and liabilities for financial and tax reporting. Such amounts are subsequently adjusted, as appropriate, to reflect changes in tax rates expected to be in effect when the temporary differences reverse. |
||
| Honeywell Investment The Honeywell investment account includes the cumulative intercompany activity from transactions, cost allocations, intercompany debts, cash management and other charges and credits, between the Business and Honeywell (and its other business units) as well as accumulated losses. |
||
| New Accounting Pronouncements In June 2002, the FASB issued SFAS No. 146, Accounting for Exit or Disposal Activities. SFAS No. 146 addresses significant issues regarding the recognition, measurement, and reporting of costs that are associated with exit and disposal activities, including restructuring activities that are currently accounted for pursuant to the guidance in EITF Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). The scope of SFAS No. 146 also includes (1) costs related to terminating a contract that is not a capital lease, (2) termination benefits that employees who are involuntarily terminated receive under the terms of a one-time benefit arrangement that is not an ongoing benefit arrangement or an individual deferred-compensation contract and (3) costs to consolidate facilities or relocate employees. SFAS No. 146 is effective for any exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS No. 146 will impact the measurement and timing of recognition of costs associated with any exit or disposal activity of the business after December 31, 2002. |
||
| In June 2001, the FASB issued SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143 addresses financial accounting and reporting for legal obligations associated with the retirement of tangible long-lived assets and the associated retirement costs that result from the acquisition, construction, or development and normal operation of a long-lived asset. Upon initial recognition of a liability for an asset retirement obligation, the new standard requires an increase in the carrying amount of the related long-lived asset. The asset retirement cost is subsequently allocated to expense using a systematic and rational method over the assets useful life. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002. Management does not expect that the adoption of this statement will have a material impact on the Businesss financial position or results of operations. | ||
| 3. | Related Party Transactions and Allocations | |
| Cash Management The Business utilizes Honeywell centralized cash management services for the majority of its operating locations. Under this arrangement, the Businesss cash receipts are collected and its cash disbursements are funded by Honeywell on a daily basis. Net activity between Honeywell and the Business is reflected in the Honeywell investment account. Cash management charges, |
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Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| net of capitalized interest, have been reflected as interest expense in the Combined Statements of Operations. | ||
| Honeywell Corporate and Business Services Charges Honeywell allocates costs associated with certain corporate overhead, such as risk management, human resources, corporate law, corporate finance and accounting, treasury and public affairs to its business units through a corporate assessment charge which is generally allocated based on sales or net investment. Charges from Honeywell for such costs have been included in cost of goods sold and selling, general and administrative expense in the Combined Statements of Operations. |
||
| Honeywell Business Services provides various information systems assistance, employee payroll processing, travel and expense processing, accounts payable, payment processing, general ledger maintenance and project tracking assistance to the Business and other related units. These costs are invoiced through intercompany charges to the Business based on certain criteria, including invoices or checks processed, headcount, general ledger line items maintained, predetermined rates or on actual services provided. Charges from Honeywell Business Services for such costs have been included in selling, general and administrative expense in the Combined Statements of Operations. | ||
| The total costs allocated to the Business for the nine months ended September 30, 2002 and for the years ended December 31, 2001 and 2000 were as follows: |
| 2002 | 2001 | 2000 | ||||||||||
Cost of goods sold |
$ | 4,013 | $ | 8,983 | $ | 6,527 | ||||||
Selling, general and administrative expense |
7,960 | 16,319 | 14,475 | |||||||||
Interest expense |
3,661 | 5,485 | 3,672 | |||||||||
| $ | 15,634 | $ | 30,787 | $ | 24,674 | |||||||
| Management believes that the methods utilized to charge costs to the Business, as discussed above, are reasonable. However, the terms of transactions, including allocated costs, may differ from those that would result from transactions with unrelated parties. | ||
| 4. | Cisco Agreement | |
| In November 2000, the Business entered into a Capacity Agreement (the Agreement) with Cisco Systems Inc. and Cisco Systems International BV (Cisco), which became effective on January 28, 2001. According to the terms of the Agreement, Cisco made a cash prepayment in the amount of $45,000 to reserve manufacturing capacity over the term of the Agreement, which is two years with an automatic three-month renewal option. The Business recorded the prepayment as Customer Advances. Under the terms of the Agreement, Cisco guarantees to order certain minimum volumes of product from the Business at predetermined prices each quarter or the Business would be entitled to deduct any shortfall from such minimum guarantees from the prepayment amount. |
F - 11
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| The Business recognized revenues in the amount of $5,000 and $20,997 during the nine months ended September 30, 2002 and the year ended December 31, 2001, respectively. The amounts recognized reflect sales to Cisco and shortfalls relative to the guaranteed minimum purchase amounts. A Customer Advances balance of $19,003 remains at September 30, 2002. | ||
| On December 6, 2002, the Business and Cisco signed an agreement requiring the Business to repay $15,000 of the remaining $19,003 prepayment. The agreement also entitles Cisco to a 3% rebate not to exceed $5,000 cumulatively on future purchases from the Business, net of shipping, taxes, returns and outstanding receivables. | ||
| 5. | Severance, Impairment and Other Exit Charges | |
| The 2001 Severance, impairment and other exit charges consist of the following: |
| Other Exit | Impairment | |||||||||||||||
| Severance | Charges | Charge | Total | |||||||||||||
2001 Charge |
$ | 10,159 | $ | 2,703 | $ | 23,543 | $ | 36,405 | ||||||||
Utilization |
(7,964 | ) | (1,472 | ) | (23,543 | ) | (32,979 | ) | ||||||||
Accrued at 12/31/01 |
2,195 | 1,231 | | 3,426 | ||||||||||||
Utilization |
(2,148 | ) | (363 | ) | | (2,511 | ) | |||||||||
Accrued at 9/30/02 |
$ | 47 | $ | 868 | $ | | $ | 915 | ||||||||
Total number of employees to be terminated |
879 | |||||||||||||||
Less: Number of employees terminated in 2001 |
(869 | ) | ||||||||||||||
Number of employees remaining to be terminated at 12/31/01 |
10 | |||||||||||||||
Less: Number of employees terminated in 2002 |
(10 | ) | ||||||||||||||
Number of employees to be terminated at 9/30/02 |
| |||||||||||||||
| During 2001, the Business recorded a charge of $36,405 as operating expense, of which $915 and $3,426 remained accrued as of September 30, 2002 and December 31, 2001, respectively. The charge consisted of employee termination benefits associated with involuntary employee terminations and other exit costs accounted for in accordance with EITF No. 94-3 and Staff Accounting Bulletin (SAB) No. 100, Restructuring and Impairment Charges. These costs resulted from the implementation of the Businesss strategy to reduce infrastructure costs by eliminating employee headcount, consolidating operations and reducing office space through the shutdown of the St. Louis Park and Hopkins facilities, as well repositioning of the Minnetonka and Roseville facilities. Involuntary termination costs were accrued after a plan had been approved and the required communications had been made. The other exit costs of $2,703 were incremental and related primarily to existing contractual lease obligations that do not have any future economic benefit. | ||
| In connection with the 2001 restructuring actions, the Business recorded a charge of $10,159 for severance payments related to workforce reductions, which included 855 manufacturing positions and 24 sales and other administrative positions. These actions were fully completed prior to |
F - 12
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| September 30, 2002, although some cash payments will continue to be made after this date to employees who have already been terminated. | ||
| In connection with the shutdown of the St. Louis Park and Hopkins facilities, and the repositioning of the Minnetonka and Roseville facilities, the Business incurred charges of $23,543 associated with the write-down of property, plant and equipment. These assets became impaired as a result of managements decision to close down the operations at the St. Louis Park facility and to transfer production and administrative functions between facilities and consolidate them. As a result of these actions, certain equipment became redundant and was disposed of. | ||
| The 2002 Severance, impairment and other exit charges consist of the following: |
| Other Exit | Impairment | |||||||||||||||
| Severance | Charges | Charge | Total | |||||||||||||
2002 Charge |
$ | 13,308 | $ | 5,779 | $ | 48,870 | $ | 67,957 | ||||||||
Utilization |
(6,387 | ) | (510 | ) | (48,870 | ) | (55,767 | ) | ||||||||
Accrued at 9/30/02 |
$ | 6,921 | $ | 5,269 | $ | | $ | 12,190 | ||||||||
Total number of employees to be terminated |
867 | |||||||||||||||
Less: Number of employees terminated in 2002 |
(752 | ) | ||||||||||||||
Number of employees to be terminated at 9/30/02 |
115 | |||||||||||||||
| During 2002, the Business recorded a charge of $67,957 as operating expense, of which $12,190 remained accrued as of September 30, 2002. The restructuring costs consisted of employee termination benefits associated with involuntary employee terminations and other exit costs accounted for in accordance with EITF No. 94-3 and SAB No. 100. These costs resulted from the implementation of the Businesss strategy to reduce infrastructure costs by further eliminating employee headcount, consolidating operations and reducing office space through the shutdown of the Minnetonka, Roseville, and Buffalo facilities. Following the completion of the 2002 actions, all remaining production and administrative functions are based in Chippewa Falls, WI. Involuntary termination costs were accrued after a plan was approved and the required communications were made. The other exit costs of $5,779 represent the remaining lease payments and the costs required to restore the leased facilities to their original condition to be incurred pursuant to existing contractual lease obligations that do not have any future economic benefit. | ||
| As part of the 2002 restructuring charge of $67,957, the Business recorded a charge of $13,308 for severance payments related to global workforce reductions. Global workforce reductions included 800 manufacturing positions and 67 sales and other administrative positions. Management expects these actions to be fully completed by the end of 2002. | ||
| In connection with the shutdown of the Buffalo, Minnetonka, and Roseville facilities, the Business incurred charges of $48,870 associated with the write-down of fixed assets, which became impaired following the consolidation of production and administrative functions in Chippewa Falls. During 2002, the Business classified property, plant and equipment with a net book value of $10,615 as Assets held for sale in accordance with the requirements in SFAS No. |
F - 13
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| 144. | These assets have been stated at their fair value less estimated selling costs and a qualifying plan to sell them was in place as of September 30, 2002. The Assets held for sale are comprised of buildings, fixtures and leaseholds of $4,315 and machinery, office furniture and equipment of $6,300. | |
| 6. | Accounts Receivable, Net | |
| Accounts receivable, net as of September 30, 2002 and December 31, 2001 consisted of the following: |
| 2002 | 2001 | ||||||||
Trade receivables |
$ | 18,250 | $ | 26,406 | |||||
Other receivables |
198 | 109 | |||||||
| 18,448 | 26,515 | ||||||||
Less allowance |
(69 | ) | (238 | ) | |||||
| $ | 18,379 | $ | 26,277 | ||||||
| 7. | Inventories, Net | |
| Inventories, net as of September 30, 2002 and December 31, 2001 consisted of the following: |
| 2002 | 2001 | ||||||||
Raw materials |
$ | 2,309 | $ | 2,856 | |||||
Work-in-process |
7,529 | 9,041 | |||||||
Finished goods |
9,530 | 11,837 | |||||||
| 19,368 | 23,734 | ||||||||
Less excess and obsolescence reserve |
(5,316 | ) | (8,760 | ) | |||||
| $ | 14,052 | $ | 14,974 | ||||||
F - 14
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| 8. | Property, Plant and Equipment, Net | |
| Property, plant and equipment, net as of September 30, 2002 and December 31, 2001 consisted of the following: |
| Estimated | |||||||||||||
| Useful Lives | |||||||||||||
| (Years) | 2002 | 2001 | |||||||||||
Land |
$ | 290 | $ | 850 | |||||||||
Buildings, fixtures and leaseholds |
40 | 9,951 | 21,903 | ||||||||||
Machinery, office furniture and equipment |
3-16 | 53,114 | 123,020 | ||||||||||
Construction-in-progress |
750 | 4,856 | |||||||||||
| 64,105 | 150,629 | ||||||||||||
Less accumulated depreciation |
(23,570 | ) | (40,899 | ) | |||||||||
| $ | 40,535 | $ | 109,730 | ||||||||||
| Depreciation expense amounted to $11,156, $24,976, and $24,047 for the nine months ended September 30, 2002, and the years ended December 31, 2001 and 2000, respectively. | ||
| 9. | Goodwill | |
| Goodwill, net as of September 30, 2002 and December 31, 2001 consisted of the following: |
| 2002 | 2001 | ||||||||
Goodwill |
$ | | $ | 40,703 | |||||
Less accumulated amortization |
| (4,783 | ) | ||||||
| $ | | $ | 35,920 | ||||||
| Goodwill amortization $2,035 for each of the years ended December 31, 2001 and 2000. Upon adoption of SFAS No. 142 effective January 1, 2002, the Business recorded a $35,920 charge to write off goodwill. See Note 2. |
F - 15
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| 10. | Capitalized Software, net | |
| Capitalized Software, net as of September 30, 2002 and December 31, 2001 consisted of the following: |
| 2002 | 2001 | |||||||
Capitalized software costs |
$ | 1,322 | $ | 1,418 | ||||
Accumulated amortization |
(747 | ) | (739 | ) | ||||
| $ | 575 | $ | 679 | |||||
| Amortization expense for the nine months ended September 30, 2002, and for the years ended December 31, 2001 and 2000 was $290, $213, and $183, respectively. | ||
| The Business accounts for software development costs, which includes purchased software and internal development costs, in accordance with the American Institute of Certified Public Accountants Statement of Position No. 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. These costs are amortized over a period of three years. | ||
| 11. | Accrued Payroll and Related Expenses | |
| Accrued payroll and related expenses as of September 30, 2002 and December 31, 2001 consisted of the following: |
| 2002 | 2001 | |||||||
Payroll, vacation and holiday |
$ | 3,027 | $ | 2,710 | ||||
Bonus |
277 | 477 | ||||||
Other accrued benefits |
1,338 | 1,860 | ||||||
| $ | 4,642 | $ | 5,047 | |||||
F - 16
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| 12. | Income Taxes | |
| The income tax provision has been calculated on a separate return basis. The following table presents the provision for income taxes: |
| 2002 | 2001 | 2000 | |||||||||||
Current: |
|||||||||||||
Federal |
| | | ||||||||||
State |
| | (25 | ) | |||||||||
| | | (25 | ) | ||||||||||
Deferred: |
|||||||||||||
Federal |
| (4,398 | ) | (1,050 | ) | ||||||||
State |
| (598 | ) | (204 | ) | ||||||||
| | (4,996 | ) | (1,254 | ) | |||||||||
Net income tax provision |
| (4,996 | ) | (1,279 | ) | ||||||||
| The principal items accounting for the difference in income tax provision computed at the U.S. statutory rate and as recorded on an overall basis for the nine months ended September 30, 2002, and the years ended December 31, 2001 and 2000 are as follows: |
| 2002 | 2001 | 2000 | ||||||||||
Statutory U.S. federal income tax rate |
(35.0 | %) | (35.0 | %) | 35.0 | % | ||||||
State taxes, net |
(3.3 | ) | (3.2 | ) | 11.4 | |||||||
Non-deductible amortization |
| 1.0 | 62.2 | |||||||||
Tax credits |
(0.2 | ) | (0.3 | ) | (21.1 | ) | ||||||
Valuation allowance |
38.5 | 43.6 | | |||||||||
All other items, net |
| (0.4 | ) | 5.9 | ||||||||
| 0.0 | % | 5.7 | % | 93.4 | % | |||||||
F-17
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| The Businesss deferred tax assets and liabilities are comprised of the following at September 30, 2002 and December 31, 2001: |
| 2002 | 2001 | ||||||||||
Deferred tax assets: |
|||||||||||
Inventory valuation reserves |
$ | 1,805 | $ | 3,353 | |||||||
Pension and accrued employee expenses |
2,993 | 2,558 | |||||||||
Other accrued expenses |
6,633 | 2,532 | |||||||||
Postretirement benefits other than pensions |
740 | 663 | |||||||||
Property, plant and equipment basis differences |
2,078 | | |||||||||
Net operating losses |
73,436 | 46,740 | |||||||||
| 87,685 | 55,846 | ||||||||||
Deferred tax liabilities: |
|||||||||||
Property, plant and equipment basis differences |
| (15,936 | ) | ||||||||
Other items |
(408 | ) | | ||||||||
| (408 | ) | (15,936 | ) | ||||||||
| 87,277 | 39,910 | ||||||||||
Less valuation allowance |
(87,277 | ) | (39,910 | ) | |||||||
Net deferred tax asset |
$ | | $ | | |||||||
| The deferred tax asset attributable to the net operating losses was determined as though the Business was a stand-alone entity and does not necessarily reflect the losses available to the Business in the future. In 2000, no valuation allowance was established for deferred tax assets because managements forecasts at the time supported their realizability. In 2001, a full valuation allowance was established for net operating losses and other deferred tax assets as the Business does not consider their realization to be more likely than not on a stand-alone basis. | ||
| The Business may be potentially liable to open tax years under taxing authority examinations arising from the operations of the Business. | ||
| 13. | Pension and Other Postretirement Benefits | |
| Certain employees of the Business participate in defined benefit pension plans covering Honeywell employees. Plan benefits are generally based on years of service and the employees compensation prior to retirement. | ||
| Honeywells retiree medical programs cover employees who retire with pension eligibility for hospital, professional, and other medical services (programs) including the Businesss eligible retired employees. Most of the programs require deductibles and co-payments and virtually all are integrated with Medicare. Retiree contributions are generally required based on coverage type, plan and Medicare eligibility. | ||
| These combined financial statements represent the pension and retiree medical results for the Business and were developed using a fresh start approach as of January 1, 2000. Under this |
F-18
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| fresh start approach, the retiree obligations were determined based on Honeywells entire plan as of January 1, 2002, 2001 and 2000. Prior service costs and actuarial gains and losses have been accumulated based on events occurring since 2000 only. Events occurring prior to 2000 have not been included. This approach reflects actual results for the Business only during that time and does not include an allocation from any other Honeywell business units. | ||
| The status of the Businesss defined benefit pension and post-retirement benefit plans at September 30, 2002 and December 31, 2001: |
| Pension Benefits | Other Post-Retirement Benefits | ||||||||||||||||||
| September 30, | December 31, | September 30, | December 31, | ||||||||||||||||
| 2002 | 2001 | 2002 | 2001 | ||||||||||||||||
Reconciliation of benefit obligation: |
|||||||||||||||||||
Obligation at January 1 |
$ | 16,028 | $ | 11,117 | $ | 1,537 | $ | 1,596 | |||||||||||
Service cost |
1,396 | 2,227 | 111 | 141 | |||||||||||||||
Interest cost |
831 | 874 | 119 | 134 | |||||||||||||||
Amendments |
| 370 | | | |||||||||||||||
Actuarial (gain) loss |
456 | 2,749 | | (327 | ) | ||||||||||||||
Benefits paid |
(42 | ) | (109 | ) | (19 | ) | (7 | ) | |||||||||||
Curtailments |
(1,867 | ) | (1,200 | ) | | | |||||||||||||
Obligation at period end |
16,802 | 16,028 | 1,748 | 1,537 | |||||||||||||||
Reconciliation of fair value of plan assets: |
|||||||||||||||||||
Fair value at January 1 |
5,232 | 5,505 | | | |||||||||||||||
Actual return on plan assets |
(530 | ) | (164 | ) | | | |||||||||||||
Benefits paid |
(42 | ) | (109 | ) | | | |||||||||||||
Fair value at period end |
4,660 | 5,232 | | | |||||||||||||||
Funded status: |
|||||||||||||||||||
Balance at |
(12,142 | ) | (10,796 | ) | (1,748 | ) | (1,537 | ) | |||||||||||
Unrecognized prior service cost |
667 | 1,365 | 15 | 17 | |||||||||||||||
Unrecognized net actuarial (gain) loss |
5,281 | 5,654 | (201 | ) | (211 | ) | |||||||||||||
Net amount recognized at
period end |
(6,194 | ) | (3,777 | ) | (1,934 | ) | (1,731 | ) | |||||||||||
Amount recognized on the
Balance Sheet consist of: |
|||||||||||||||||||
Accrued benefit liability |
(7,780 | ) | (6,634 | ) | |||||||||||||||
Intangible asset |
667 | 1,365 | |||||||||||||||||
Accumulated other comprehensive income |
919 | 1,492 | |||||||||||||||||
Net amount recognized at period end |
(6,194 | ) | (3,777 | ) | |||||||||||||||
F-19
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| The components of net periodic benefit cost for the nine months ended September 30, 2002 and for the years ended December 31, 2001 and 2000 are as follows: |
| Pension Benefits | Other Postretirement Benefits | |||||||||||||||||||||||||
| September 30, | December 31, | December 31, | September 30, | December 31, | December 31, | |||||||||||||||||||||
| 2002 | 2001 | 2000 | 2002 | 2001 | 2000 | |||||||||||||||||||||
Service cost |
$ | 1,396 | $ | 2,227 | $ | 1,410 | $ | 111 | $ | 141 | $ | 137 | ||||||||||||||
Interest cost |
831 | 874 | 368 | 119 | 134 | 114 | ||||||||||||||||||||
Expected return on assets |
(508 | ) | (780 | ) | (461 | ) | | | | |||||||||||||||||
Amortization of: |
||||||||||||||||||||||||||
Prior service cost |
93 | 129 | | 2 | 2 | 1 | ||||||||||||||||||||
Actuarial (gain) loss |
1 | (95 | ) | (96 | ) | (10 | ) | | | |||||||||||||||||
Recognition of settlements and curtailments |
605 | 200 | | | | | ||||||||||||||||||||
Total net periodic benefit cost |
2,418 | 2,555 | 1,221 | 222 | 277 | 252 | ||||||||||||||||||||
F-20
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| The weighted-average assumptions used in the measurement of pension benefit obligation were as follows: |
| September 30, | December 31, | December 31, | ||||||||||
| 2002 | 2001 | 2000 | ||||||||||
Discount rate |
7.00 | % | 7.25 | % | 7.75 | % | ||||||
Expected return on plan assets |
9.00 | % | 10.00 | % | 10.00 | % | ||||||
Rate of compensation increase |
4.00 | % | 4.00 | % | 4.00 | % | ||||||
| The assumptions used in the measurement of postretirement benefit obligations other than pensions were as follows: |
| September 30, | December 31, | December 31, | ||||||||||
| 2002 | 2001 | 2000 | ||||||||||
Discount rate |
7.00 | % | 7.25 | % | 7.75 | % | ||||||
Health care cost trend on covered charges |
8.25 | % | 8.25 | % | 8.25 | % | ||||||
| The assumed rate of future increases in per capita cost of covered health benefits was 8.25% in 2000 and remains constant thereafter. | ||
| Assumed health care costs trend rates have a significant effect on the health care plan. A one percentage point change in assumed health care costs trend rates for 2002 would have the following effects: |
1% increase |
|||||
Effect on total service and interest cost components |
$ | 1 | |||
Effect on postretirement benefit obligation |
10 | ||||
1% decrease |
|||||
Effect on total service and interest cost components |
(2 | ) | |||
Effect on postretirement benefit obligation |
(17 | ) | |||
| 14. | Employee Stock Option Plan | |
| The Business has no separate employee stock option plan; however, certain employees of the Business participate in Honeywells Stock Option Plan for the grant of stock options at an exercise price which is 100% of the fair market value of the option on the date of grant. The plan provides that stock options generally become exercisable over a three-year period after their date of grant. The stock options terminate ten years from the date of grant. |
F-21
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| The following summarizes information about stock option activity for the nine months ended September 30, 2002, and the years ended December 31, 2001 and 2000: |
| Weighted- | ||||||||
| Number | Average | |||||||
| of | Exercise | |||||||
| Options | Price | |||||||
Outstanding at January 1, 2000 |
76,781 | $ | 44.54 | |||||
Granted |
17,000 | $ | 42.32 | |||||
Exercised |
(12,325 | ) | $ | 17.93 | ||||
Cancelled |
(9,000 | ) | $ | 62.04 | ||||
Outstanding at December 31, 2000 |
72,456 | $ | 46.37 | |||||
Granted |
80,300 | $ | 36.27 | |||||
Cancelled |
(2,260 | ) | $ | 41.96 | ||||
Outstanding at December 31, 2001 |
150,496 | $ | 40.51 | |||||
Cancelled |
(34,565 | ) | $ | 42.82 | ||||
Outstanding at September 30, 2002 |
115,931 | $ | 40.52 | |||||
| SFAS No. 123, Accounting for Stock-Based Compensation, requires that the cost of stock-based compensation be measured using a fair value based method. As permitted by SFAS No. 123, the Business elected to continue to account for stock-based compensation using the intrinsic value based method under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees. Accordingly, no compensation cost has been recognized for the stock option plan. Had compensation cost for the stock options awarded to the employees of the Business been determined based on the fair value at the grant date under the stock option plan, consistent with the methodology prescribed under SFAS No. 123, the net income of the Business would have decreased on a pro forma basis by $214, $303 and $226 for the nine months ended September 30, 2002, and the years ended December 31, 2001 and 2000, respectively. |
F-22
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| The weighted-average fair value of stock options granted in 2001 and 2000 was estimated at $13.82 and $14.62, respectively using the Black-Scholes option-pricing model using the following assumptions: |
| 2001 | 2000 | |||||||
Historical volatility |
40.9 | % | 27.8 | % | ||||
Risk-free rate of return |
5.2 | % | 6.4 | % | ||||
Historical dividend yield |
1.5 | % | 1.4 | % | ||||
Expected life (years) |
5 | 5 | ||||||
| There were no stock options granted in the nine months ended September 30, 2002. | ||
| The following table summarizes information about stock options outstanding and exercisable at September 30, 2002: |
| Weighted- | ||||||||||||||||||||
| Weighted- | Weighted- | Average | ||||||||||||||||||
| Range of | Number | Average | Exercise | Number | Exercise | |||||||||||||||
| Exercise Prices | Outstanding | Life | Price | Exercisable | Price | |||||||||||||||
$13.91 - $25.32 |
7,575 | 3.2 | $ | 24.77 | 7,575 | $ | 24.77 | |||||||||||||
$33.88 - $36.47 |
71,960 | 8.0 | $ | 36.12 | 45,200 | $ | 36.08 | |||||||||||||
$41.41 - $45.72 |
19,395 | 6.6 | $ | 43.33 | 17,985 | $ | 43.14 | |||||||||||||
$61.03 - $63.00 |
17,001 | 7.1 | $ | 62.97 | 14,001 | $ | 62.96 | |||||||||||||
| 115,931 | 7.3 | $ | 40.52 | 84,761 | $ | 41.01 | ||||||||||||||
| The weighted-average life represents the average remaining contractual life in years. | ||
| 15. | Commitments and Contingencies | |
| The Business is subject to various lawsuits, investigations and claims with respect to matters such as product liability, governmental and environmental regulations arising out of the normal course of business. Although we do not currently possess sufficient information to reasonably estimate the amounts of liabilities to be recorded upon future completion of investigations, litigation, or settlements, and neither the timing nor the amount of the ultimate costs associated with these matters can be determined, they could be material to the financial position or results of operations the Business. |
F-23
Table of Contents
Honeywell International Inc.
Advanced Circuits
Notes to Combined Financial Statements
(Dollars in thousands)
| The Business leases certain buildings and equipment under operating lease agreements. Total rental expense under operating leases was $866, $999 and $2,715 for the nine months ended September 30, 2002, and for the years ended December 31, 2001 and 2000, respectively. Future minimum lease payments under operating leases having initial or remaining noncancelable lease terms in excess of one year are as follows: |
| Operating | ||||
| Leases | ||||
Three months ending December 31, 2002 |
$ | 521 | ||
2003 |
1,416 | |||
2004 |
1,340 | |||
2005 |
804 | |||
2006 |
29 | |||
Thereafter |
| |||
| $ | 3,589 | |||
| 16. | Geographic Information | |
| The Business operates primarily in one industry segment, that being the manufacture and sale of printed circuit boards. Financial information by geographic areas for the nine months ended September 30, 2002 and for the years ended December 31, 2001 and 2000, was as follows: |
| 2002 | 2001 | 2000 | |||||||||||
Total sales: |
|||||||||||||
United States |
$ | 44,215 | $ | 152,361 | $ | 283,050 | |||||||
Brazil |
5,461 | 13,132 | 30,445 | ||||||||||
Italy |
10,942 | 19,194 | 8,880 | ||||||||||
Canada |
7,960 | 11,419 | | ||||||||||
Mexico |
6,284 | 10,790 | | ||||||||||
Other |
29,066 | 25,284 | 29,661 | ||||||||||
| $ | 103,928 | $ | 232,180 | $ | 352,036 | ||||||||
| Total sales are classified according to their country of destination. | ||
| 17. | Subsequent Events (Unaudited) | |
| In November of 2002, the Business recorded a $2,955 charge related to the involuntary termination of approximately 200 employees. | ||
| On December 26 2002, TTM Technologies, Inc. (TTM) acquired all of the outstanding capital stock of the Business from Honeywell International Inc. for one dollar. TTM is a manufacturer of complex printed circuit boards used in sophisticated electronic equipment. |
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EXHIBIT INDEX
| Exhibit 10.15 | Stock Purchase Agreement, dated as of December 24, 2002, between Honeywell Electronic Materials, Inc., a Washington corporation and TTM Technologies, Inc., a Washington corporation. |