FRONTLINE COVER FA 070606 CR2.indd

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104 frontline technologies corporation ltd annual report 2006 > explanatory notes to notice of annual general meeting (“notice”) Notes: (1) NTA equals Shareholders’ funds less intangible assets. (2) Earnings per share is computed based on the number of shares in issue as at 31 March 2006. (3) Gearing equals total bank borrowings and hire purchase creditors of S$24,736,527 and S$4,487,040 for the Group and Company respectively, divided by Shareholders’ funds. (4) Current ratio equals current assets divided by current liabilities. (b) (c) As at 31 March 2006, the Group and the Company had cash and cash equivalents of S$32,744,007 and S$1,701,337 respectively. In order to effect a purchase of up to 82,404,495 Shares at the Maximum Price computed at the Latest Practicable Date, cash reserves and cash equivalents by the Company of S$10,382,966 will be required. Any shortfall in the cash reserve by the Company to effect the purchase of Shares will be made up by utilization of other excess cash reserves available within the Group. As illustrated above, the purchase of Shares will have the effect of reducing the working capital and the net tangible assets of the Company and Group by the dollar value of the Shares purchased. The consolidated NTA per Share as at 31 March 2006 will decrease from 8.33 cents to 7.86 cents. Assuming that the Shares Purchases had taken place on 31 March 2006, the consolidated basic earnings per Share of the Group for the financial year ended 31 March 2006 would be increased from 0.89 cents per Share to 0.98 cents per Share as a result of the reduction in the number of issued Shares. SHAREHOLDERS SHOULD NOTE THAT THE FINANCIAL EFFECTS SET OUT ABOVE, BASED ON THE RESPECTIVE AFOREMENTIONED ASSUMPTIONS, ARE FOR ILLUSTRATION PURPOSES ONLY. IN PARTICULAR, IT IS IMPORTANT TO NOTE THAT THE ABOVE ILLUSTRATION IS BASED ON HISTORICAL FINANCIAL YEAR 2006 NUMBERS AND IS NOT NECESSARILY REPRESENTATIVE OF FUTURE FINANCIAL PERFORMANCE. (d) (e) Any Shares Purchase will reduce the Company’s retained earnings by the aggregate sum of the purchase price. As the Shares Purchase will reduce the cash reserves of the Group and the Company, there will be a corresponding reduction in the current assets and the Shareholders’ funds of the Group and the Company. The gearing ratios of the Group and the Company will thus be increased and the current ratios of the Group and the Company will decline. The actual impact of the gearing and current ratios will depend on the number of Shares purchased and the prices at which the Shares were purchased. As at the Latest Practicable Date, the cash and cash equivalents, including fixed deposits and short term investments, of the Company and the Group were approximately S$1,200,000 and S$29,000,000 respectively. When undertaking any Shares Purchase, the Directors will ensure that: (i) the Company and the Group will at all times have adequate working capital to meet its operational requirements; (ii) any Shares Purchase will be financed by the Company’s distributable profits; and (iii) the Group will not obtain nor incur any borrowings to finance any Shares Purchase.
frontline technologies corporation ltd annual report 2006 105 > explanatory notes to notice of annual general meeting (“notice”) 7.11 Tax Implications. Under Section 10J of the Income Tax Act and the Interpretation & Practice Note No. 34 published on 31 December 1998 by the Inland Revenue Authority of Singapore, a company which buys back its own shares using its distributable profits will be regarded as having paid a dividend to the shareholders from whom the shares are acquired. The Company will thus have to provide for franking of the shares purchased at either the prevailing corporate tax rate of 20% (with effect from the Year of Assessment 2006) in the same manner as paying a taxed dividend, the amount paid for the shares purchased being the deemed net dividend, or out of its exempt profits, the amount paid for the shares purchased being the gross tax exempt dividend. Currently, the Company has exempt profits, but if such exempt profits are insufficient for the purposes of the shares purchase, then the Company will have to ensure tax is paid in respect of funds used to purchase Shares, as if for a taxable dividend. Notwithstanding the fact that the Company will be regarded as paying a dividend, the nature of the payment in the hands of Shareholders and whether tax credits, if applicable, can be passed to Shareholders will depend on how the Shares Purchase is effected by the Company. The Shares purchased will not have any effect on the income tax status of the Company as the Company has sufficient tax-exempt profits to support the Share Purchases. SHAREHOLDERS SHOULD NOTE THAT THE FOREGOING IS NOT TO BE REGARDED AS ADVICE ON THE TAX POSITION OF ANY SHAREHOLDER. SHAREHOLDERS WHO ARE IN DOUBT AS TO THEIR RESPECTIVE TAX POSITIONS OR THE TAX IMPLICATIONS OF THE SHARES PURCHASED BY THE COMPANY, OR WHO MAY BE SUBJECT TO TAX WHETHER IN OR OUTSIDE SINGAPORE, SHOULD CONSULT THEIR OWN PROFESSIONAL ADVISORS. 7.12 Take-over Implications. Appendix 2 to the Take-over Code contains the Share Buy-Back Guidance Note. The take-over implications arising from any purchase or acquisition by the Company of its Shares are set our below. 7.12.1 Obligation to make a Take-over Offer If, as a result of any purchase or acquisition by the Company of the Shares, the proportionate interest in the voting capital of the Company of a Shareholder and persons acting in concert with him increases, such increase will be treated as an acquisition for the purposes of Rule 14 of the Take-over Code. Consequently, a Shareholder or a group of Shareholders acting in concert with a Director would obtain or consolidate effective control of the Company and become obliged to make an offer under Rule 14 of the Take-over Code.
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FRONTLINE COVER FA 070606 CR2.indd

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