<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
Flextronics International Ltd.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Flextronics International Ltd.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
LOGO
NOTICE OF ANNUAL GENERAL MEETING OF SHAREHOLDERS
TO BE HELD ON AUGUST 15, 1996
To our Shareholders:
You are cordially invited to attend and NOTICE IS HEREBY GIVEN of the
Annual General Meeting of FLEXTRONICS INTERNATIONAL LTD. (the "Company") which
will be held at the Sheraton San Jose, 1801 Barber Lane, Milpitas, California,
United States of America, at 9:00 a.m., California time on August 15, 1996 for
the following purposes:
As Ordinary Business
1. To re-elect the following Directors, who will retire pursuant to Article
95 of the Articles of Association of the Company, to the Board of Directors:
(a) Robert R.B. Dykes
(b) Michael E. Marks
(c) Andrew W. Russell
2. To re-elect Stephen J.L. Rees, who will cease to hold office pursuant to
Article 101 of the Articles of Association of the Company, to the Board of
Directors.
3. To receive and adopt the Audited Accounts of the Company for the fiscal
year ended March 31, 1996 together with the Reports of the Directors and
Auditors thereon.
4. To consider and vote upon a proposal to reappoint Ernst & Young as
independent auditors for the Company for the fiscal year ending March 31, 1997
and to authorize the Board of Directors to fix their remuneration.
As Special Business
5. To pass the following resolution as an Ordinary Resolution:
RESOLVED THAT approval be and is hereby given for the Company's 1993
Share Option Plan (the "1993 Plan") to be amended to increase the maximum
number of Ordinary Shares authorized for issuance under the 1993 Plan from
1,500,000 Ordinary Shares to 2,000,000 Ordinary Shares and that an
additional 500,000 Ordinary Shares be reserved for issuance under the 1993
Plan, and that such Ordinary Shares, when issued and paid for in accordance
with the terms of the 1993 Plan, shall be validly issued, fully paid and
nonassessable Ordinary Shares in the capital of the Company.
6. To pass the following resolution as an Ordinary Resolution:
RESOLVED THAT pursuant to the provisions of Section 161 of the
Companies Act, Cap. 50, and notwithstanding the provisions of Article 46 of
the Articles of Association of the Company but subject otherwise to the
provisions of that Act and the Articles of Association of the Company, the
Board of Directors be and are hereby authorized to allot and issue or grant
options in respect of Ordinary Shares in the capital of the Company or to
allot and issue such shares in the capital of the Company pursuant to the
exercise of any option granted in respect thereof to such persons on such
terms and conditions and with such rights or restrictions as they may think
fit to impose and as are set forth in the Articles of Association of the
Company aforesaid and that such authority shall continue in force until the
conclusion of the next Annual General Meeting or the expiration of the
period within which the next Annual General Meeting of the Company is
required by law to be held, whichever is the earlier.
<PAGE> 3
As Ordinary Business
7. To transact any other business as may properly be transacted at any
Annual General Meeting.
The Board of Directors has fixed the close of business on June 25, 1996 as
the record date for determining those shareholders who will be entitled to
receive copies of this Notice and accompanying Proxy Statement. However, holders
of record on August 15, 1996 will be entitled to vote at the Annual General
Meeting.
A shareholder (member) entitled to attend and vote at the Annual General
Meeting is entitled to appoint a proxy to attend and vote on his or her behalf.
A proxy need not also be a shareholder (member). Representation of at least
33 1/3% of all outstanding Ordinary Shares of Flextronics International Ltd. is
required to constitute a quorum. Accordingly, it is important that your shares
be represented at the meeting. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING,
PLEASE COMPLETE, DATE AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ENCLOSED ENVELOPE. An instrument appointing a proxy must be left at the
registered office of the Company located at 36, Robinson Road, #18-01, City
House, Singapore 068877 or at The First National Bank of Boston, 150 Royall
Street, M/S 45-01-07, Canton, Massachusetts 02021, United States of America not
less than forty-eight (48) hours before the time appointed for holding the
meeting. Your proxy may be revoked at any time prior to the time it is voted.
By Order of the Board of Directors,
Yap Lune Teng
Joint Secretary
Singapore
June 25, 1996
ii
<PAGE> 4
SHAREHOLDERS SHOULD READ THE ENTIRE PROXY STATEMENT CAREFULLY PRIOR TO RETURNING
THEIR PROXIES
PROXY STATEMENT
FOR
ANNUAL GENERAL MEETING OF SHAREHOLDERS
OF
FLEXTRONICS INTERNATIONAL LTD.
TO BE HELD AUGUST 15, 1996
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of Flextronics International Ltd. (the "Company") of
proxies to be voted at the Annual General Meeting which will be held at 9:00
a.m., California time on August 15, 1996 at the Sheraton San Jose, 1801 Barber
Lane, Milpitas, California in the United States of America, or at any
adjournments or postponements thereof, for the purposes set forth in the
accompanying Notice of Annual General Meeting. This Proxy Statement and the
proxy card were first mailed to shareholders of record on June 25, 1996 on or
about June 25, 1996. The entire cost of soliciting proxies will be borne by the
Company.
VOTING RIGHTS AND SOLICITATION OF PROXIES
The close of business on June 25, 1996 was the record date for shareholders
entitled to notice of the Annual General Meeting. As of that date, the Company
had 13,266,483 Ordinary Shares, S$0.01 par value per share (the "Ordinary
Shares"), issued and outstanding. All of the Ordinary Shares issued and
outstanding on August 15, 1996 are entitled to vote at the Annual General
Meeting, and shareholders of record on August 15, 1996 entitled to vote at the
meeting will on a poll have one (1) vote for each Ordinary Share so held on the
matters to be voted upon.
Ordinary Shares represented by proxies in the accompanying form which are
properly executed and returned to the Company will be voted at the Annual
General Meeting in accordance with the shareholders' instructions contained
therein. The affirmative vote of the holders of a majority of the issued shares
present and voting in person or by proxy at the Annual General Meeting is
required to re-elect the directors nominated pursuant to Proposal Nos. 1(a), (b)
and (c) and 2, and to approve the ordinary resolutions in Proposal Nos. 3, 4, 5
and 6. Abstentions and broker non-votes are each included in the determination
of the number of shares present for quorum purposes. Neither abstentions nor
broker non-votes are counted in tabulations of the votes cast on proposals
presented to shareholders.
In the absence of contrary instructions, shares represented by proxies will
be voted FOR Proposals 1, 2, 3, 4, 5 and 6. Management does not know of any
matters to be presented at this Annual General Meeting other than those set
forth in this Proxy Statement and in the Notice accompanying this Proxy
Statement. If other matters should properly come before the meeting, the proxy
holders will vote on such matters in accordance with their best judgment. Any
shareholder of record has the right to revoke his or her proxy at any time prior
to voting at the Annual General Meeting by submitting a subsequently dated proxy
or by attending the meeting and voting in person. To be effective, a proxy must
be deposited at the registered office of the Company located at 36 Robinson Road
#18-01, City House, Singapore 068877 or at The First National Bank of Boston,
150 Royall Street, M/S 45-01-07, Canton, Massachusetts 02021, United States of
America, at least forty-eight (48) hours before the time set for the Annual
General Meeting.
The Company has prepared in accordance with Singapore law, Singapore dollar
financial statements to be distributed as part of this Proxy Statement. Except
as otherwise stated herein, all monetary amounts in this Proxy Statement have
been presented in U.S. dollars.
<PAGE> 5
PROPOSALS 1(A), (B) AND (C) AND 2:
RE-ELECTION OF DIRECTORS
At each Annual General Meeting at least one-third ( 1/3) of the Directors
(or, if their number is not a multiple of three (3), the number nearest to but
not less than one-third ( 1/3)) are required to retire from office. The
Directors required to retire in each year are those who have been in office
longest since their last re-election or appointment. As between persons who
became or were last re-elected Directors on the same day, those required to
retire are (unless they otherwise agree among themselves) determined by lot.
Retiring Directors are eligible for re-election. The first three (3) names set
forth below are the three (3) members of the Board of Directors who will retire
and are eligible for re-election and have been nominated to stand for re-
election at the 1996 Annual General Meeting. Under Article 101 of the Articles
of Association of the Company, any person appointed as a Director of the Company
by the Board of Directors shall hold office only until the next Annual General
Meeting of the Company and shall then be eligible for re-election, but shall not
be taken into account in determining the number of Directors who are to retire
by rotation at such Meeting in the manner stated above. The fourth (4th) name
set forth below is the member of the Board of Directors who was so appointed on
April 15, 1996 and is eligible for re-election and has been nominated to stand
for re-election at the 1996 Annual General Meeting. The proxy holders intend to
vote all proxies received by them in the accompanying form for the nominees for
Directors listed below. In the event any nominee is unable or declines to serve
as a Director at the time of the Annual General Meeting, the proxies will be
voted for any nominee who shall be designated by the present Board of Directors,
in accordance with Article 100 of the Articles of Association of the Company, to
fill the vacancy. In the event that additional persons are nominated for
election as Directors, in accordance with Article 100 of the Articles of
Association of the Company, the proxy holders intend to vote all proxies
received by them for the nominees listed below. As of the date of this Proxy
Statement, the Board of Directors is not aware of any nominee who is unable or
will decline to serve as a Director.
THE BOARD RECOMMENDS A VOTE FOR THE RE-ELECTION OF THE THREE (3) DIRECTORS
SET FORTH BELOW AND THE RE-ELECTION OF MR. REES TO THE BOARD.
NOMINEES TO BOARD OF DIRECTORS
Robert R.B. Dykes (age 47) -- Mr. Dykes has served as a Director of the
Company since January 1994. Mr. Dykes has been Executive Vice President,
Worldwide Operations and Chief Financial Officer of Symantec Corporation, an
application and system software products company, since 1988.
Michael E. Marks (age 45) -- Mr. Marks has been the Company's Chief
Executive Officer since January 1994 and its Chairman of the Board since July
1993. He has been a Director of the Company since December 1991. From November
1990 to December 1993, Mr. Marks was President and Chief Executive Officer of
Metcal, Inc., a precision heating instrument company. From September 1989 to
November 1990, Mr. Marks was Vice President of Operations at Electronic Arts, an
interactive multimedia company. From 1988 to 1989, he was Senior Vice President
and General Manager of Flex Holdings Pte Limited (the predecessor to the
Company). Mr. Marks received a B.A. and M.A. from Oberlin College and an M.B.A.
from the Harvard Business School.
Andrew W. Russell (age 57) -- Mr. Russell has served as a Director of the
Company since September 1991. Mr. Russell has been employed by Jardine Fleming
Investment Management since July 1990. From 1988 to July 1990 he was a director
of Standard Chartered Asia Development Capital Ltd., a venture capital firm.
Stephen J.L. Rees (age 35) -- Mr. Rees has served as a Director of the
Company since April 15, 1996 and as Chairman of Astron Group Ltd. ("Astron")
since the acquisition of Astron by the Company in February 1996. Since November
1991 Mr. Rees has been Chairman and Chief Executive Officer of Astron. Prior to
1991, Mr. Rees held several senior management positions at Siemens A.G. in
Europe and Singapore. Mr. Rees holds a B.A. in Finance from the City of London
Business School and graduated in Production Technology and Mechanical
Engineering from the HTL St. Polten Technical Institute in Austria.
2
<PAGE> 6
DIRECTORS NOT STANDING FOR RE-ELECTION
Bernard J. Lacroute (age 52) -- Mr. Lacroute has served as a Director of
the Company since July 1993. Mr. Lacroute has been a partner of Kleiner Perkins
Caufield & Byers, a Northern California venture capital firm, since 1989. Mr.
Lacroute also serves as a director of Radius, Inc. and several privately-held
companies.
Tsui Sung Lam (age 46) -- Mr. Tsui has been the Company's President and
Chief Operating Officer since January 1994 and a Director from May 1990 to June
1990 and from September 1991 to present. From June 1990 to December 1993, he was
the Company's Managing Director and Chief Executive Officer. From 1982 to June
1990, Mr. Tsui served in various positions with Flex Holdings Pte Limited (the
predecessor to the Company) including Vice President of Asian Operations. Mr.
Tsui received Diplomas in Production Engineering and Management Studies from
Hong Kong Polytechnic and a Certificate in Industrial Engineering from Hong Kong
University.
Michael J. Moritz (age 41) -- Mr. Moritz has served as a Director of the
Company since July 1993. Mr. Moritz has been a General Partner of Sequoia
Capital, a venture capital firm, since 1988. Mr. Moritz also serves as a
director of Global Village Communication, Inc. and several privately-held
companies. Mr. Moritz is also a director of Yahoo! Inc. and Global Village
Communication, Inc.
Richard L. Sharp (age 49) -- Mr. Sharp has served as a Director of the
Company since July 1993. He has been the Chairman, President, Chief Executive
Officer and a director of Circuit City Stores, Inc., a consumer electronics and
appliances retailer, since June 1986. Mr. Sharp also serves as a director of S&K
Famous Brands, Inc. and the James River Corporation.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of one hundred and
thirty-two (132) meetings during fiscal 1996. One hundred and nine (109) of
these meetings were held solely for the purpose of approving the allotment of
Ordinary Shares of the Company in connection with employee stock option
exercises, as required under Singapore law, and were not, except for one (1)
meeting, attended by the full Board of Directors. During the period for which
each Director was a Director or a committee member, all Directors except Messrs.
Moritz, Dykes, Lacroute, Russell and Sharp attended at least 75% of the
aggregate of (i) the total number of meetings of the Board and (ii) the total
number of meetings held by all committees of the Board on which he served. Of
the twenty-three (23) meetings held primarily for purposes other than the
approval of allotments of Ordinary Shares of the Company in connection with
employee stock option exercises, all Directors, except for Messrs. Moritz,
Russell, Sharp, Dykes and Lacroute, attended at least 75% of the aggregate of
the total number of meetings of the Board and the total number of meetings held
by all committees of the Board on which he served.
The Board of Directors has created an Audit Committee and a Compensation
Committee of the Board. The Audit Committee is composed of Robert R.B. Dykes and
Michael J. Moritz and is charged with reviewing the Company's annual audit and
meeting with the Company's independent accountants to review the Company's
internal controls and financial management practices. The Compensation
Committee, which is composed of Andrew W. Russell and Richard L. Sharp,
recommends to the Board of Directors compensation for the Company's key
employees and administers the employee share option plans. The Audit Committee
held one (1) meeting in fiscal 1996 and the Compensation Committee held eight
(8) meetings in fiscal 1996. There is no nominating committee or a committee
performing the functions of a nominating committee.
DIRECTOR REMUNERATION
Each non-employee Director who does not reside in Singapore receives stock
options pursuant to the automatic option grant provisions of the Company's 1993
Share Option Plan. Pursuant to this program, Richard L. Sharp, Robert R.B.
Dykes, Bernard J. Lacroute, Michael J. Moritz and Andrew W. Russell each
received option grants for 3,000 Ordinary Shares in fiscal 1996. In addition,
all Directors receive reimburse-
3
<PAGE> 7
ment of reasonable out-of-pocket expenses incurred in connection with meetings
of the Board of Directors. No Director who is an employee of the Company
receives compensation for services rendered as a Director.
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information concerning the compensation paid
or accrued by the Company for services rendered during fiscal 1996, 1995 and
1994 by the Chief Executive Officer and each of the four most highly compensated
executive officers whose total salary and bonus for fiscal 1996 exceeded
$100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS(1)
ANNUAL COMPENSATION ------------
FISCAL ------------------- OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (# SHARES) COMPENSATION
- ------------------------------------------- ------ -------- -------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Michael E. Marks........................... 1996 $275,000 $132,500 150,000 $ 19,188(2)
Chairman of the Board and 1995 250,000 45,750 25,000 16,374(3)
Chief Executive Officer 1994 80,002 -- 75,000 3,267(4)
Tsui Sung Lam.............................. 1996 249,176 143,313 40,000 39,988(5)
President and Chief Operating Officer 1995 216,028 67,533 -- 18,288(6)
1994 201,390 28,105 130,050 12,091(7)
Dennis P. Stradford........................ 1996 191,100 65,066 13,000 21,835(8)
Senior Vice President of Sales and 1995 182,000 45,018 -- 16,000(9)
Marketing 1994 163,603 50,000 100,830 15,230(10)
Goh Chan Peng.............................. 1996 163,718 65,976 15,000 24,217(11)
Chief Financial Officer 1995 134,193 49,544 -- 14,122(12)
1994 117,793 40,707 82,830 10,854(13)
Michael McNamara........................... 1996 173,250 53,626 15,000 11,778(14)
Vice President, President of U.S. 1995 165,000 15,468 -- 6,600(15)
Operations 1994 -- -- 30,000 --
</TABLE>
- ---------------
(1) In July 1993, options granted in fiscal 1993 by one of the Company's
subsidiaries to purchase shares of that subsidiary were cancelled and the
Company replaced such subsidiary options with grants of options to purchase
a like number of Ordinary Shares at the same exercise price. The number of
option shares covered by these replacement grants are as follows: Mr. Tsui:
115,050; Mr. Stradford: 91,830; and Mr. Goh: 67,830.
(2) Includes an auto allowance of $8,978, $4,370 in Company contributions to
the Company's 401(k) plan and $5,839 in life and disability insurance
premium payments.
(3) Includes an auto allowance of $7,204, $4,520 in Company contributions to
the Company's 401(k) plan and $4,650 in life insurance premium payments.
(4) Includes an auto allowance of $1,800 and $1,467 in Company contributions to
the Company's 401(k) plan.
(5) Includes $736 in life insurance premium payments and $39,252 in Company
contributions to the Central Provident Fund. The Central Provident Fund is
a statutory savings plan to provide for employees' retirement in Singapore.
(6) Includes $671 in life insurance premium payments and $17,617 in Company
contributions to the Central Provident Fund.
(7) Includes $625 in life insurance premium payments and $11,466 in Company
contributions to the Central Provident Fund.
4
<PAGE> 8
(8) Includes $5,587 in life insurance premium payments, an auto allowance of
$7,200 and $3,832 in Company contributions to the Company's 401(k) plan and
a travel allowance of $5,216.
(9) Includes $3,340 in life insurance premium payments, an auto allowance of
$7,200 and $5,460 in Company contributions to the Company's 401(k) plan.
(10) Includes $3,400 in life insurance premium payments, an auto allowance of
$7,200 and $4,630 in Company contributions to the Company's 401(k) plan.
(11) Includes $736 in life insurance premium payments and $23,481 in Company
contributions to the Central Provident Fund.
(12) Includes $671 in life insurance premium payments and $13,451 in Company
contributions to the Central Provident Fund.
(13) Includes $625 in life insurance premium payments and $10,229 in Company
contributions to the Central Provident Fund.
(14) Represents an auto allowance of $11,778.
(15) Represents an auto allowance of $6,600.
OPTION GRANT TABLE
The following table provides information concerning the grants of options
to purchase the Company's Ordinary Shares made in fiscal 1996 to the persons
named in the Summary Compensation Table. No stock appreciation awards were
granted to any such person in fiscal 1996 except to the extent described in
footnote (1) to this table. Certain option grants have been made to the persons
named in the Summary Compensation Table in fiscal 1997. See also "Stock Awards
Table."
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
OF SHARE PRICE
% OF TOTAL APPRECIATION
OPTIONS GRANTED FOR OPTION TERM(3)
OPTIONS TO EMPLOYEES EXERCISE PRICE EXPIRATION -----------------------
NAME GRANTED (#)(1) IN FISCAL YEAR ($/SH)(2) DATE 5% ($) 10% ($)
- -------------------------------------- --------------- -------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Marks........ 150,000 24.12 $14.75 4/9/00 1,391,429 3,526,155
Tsui Sung Lam........... 40,000 6.43 14.75 4/9/00 371,048 940,308
Dennis P. Stradford..... 10,000 1.61 14.75 4/9/00 92,762 235,077
Goh Chan Peng........... 10,000 1.61 14.75 4/9/00 92,762 235,077
5,000 .80 35.75 3/21/01 112,414 284,881
Michael McNamara........ 10,000 1.61 14.75 4/9/00 92,762 235,077
5,000 .80 35.75 3/21/01 112,414 284,881
</TABLE>
- ---------------
(1) The options are exercisable at the rate of (i) 25% upon completion of twelve
months of service beginning on the date the option was granted and (ii)
then 1/36th of the remaining balance in each calendar month thereafter. The
options will become immediately exercisable for all of the option shares in
the event the Company is acquired by merger or sale of substantially all of
the Company's assets or outstanding Ordinary Shares, unless the options are
assumed or otherwise replaced by the acquiring entity. The Compensation
Committee has authority to provide for the acceleration of each option in
connection with certain hostile tender offers or proxy contests for Board
membership. Each option includes a limited stock appreciation right
pursuant to which the option will automatically be canceled upon the
occurrence of certain hostile tender offers, in return for a cash
distribution from the Company based on the tender offer price per share.
The options have a maximum term of five (5) years, subject to earlier
termination in the event of the optionee's cessation of service with the
Company.
(2) The exercise price of the option may be paid in cash or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Compensation Committee has the authority to reprice outstanding options
through the cancellation of those options and the grant of replacement
options with an exercise price equal to the lower fair market value of the
option shares on the regrant date.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of share price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of future Ordinary Share prices.
5
<PAGE> 9
YEAR-END OPTION TABLE
The following table sets forth certain information regarding the exercise
of options to purchase Ordinary Shares during fiscal 1996 and unexercised
options held as of March 31, 1996 by the individuals named in the Summary
Compensation Table.
AGGREGATED OPTION EXERCISES IN FISCAL
1996 AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARES AT MARCH 31, 1996 (#) AT MARCH 31, 1996 ($)(2)
ACQUIRED ON VALUE ------------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($)(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------- -------------- --------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Marks... 8,000 101,360 81,062 160,938 1,695,724 2,920,166
Tsui Sung Lam...... 40,000 828,200 53,542 43,458 1,355,900 825,010
Dennis P.
Stradford........ 24,000 483,530 13,958 15,042 353,748 320,722
Goh Chan Peng...... 15,000 378,700 24,292 22,708 630,516 388,394
Michael McNamara... 0 0 19,792 25,208 494,069 448,531
</TABLE>
- ---------------
(1) Market value on the date of exercise, less option exercise price.
(2) Calculated on the basis of the fair market value of the Company's Ordinary
Shares at year-end on March 29, 1996 of $30.50 per share minus the per
share exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Messrs. Russell and
Sharp. No officers of the Company serve on the Compensation Committee. Andrew W.
Russell is employed by Jardine Fleming Investment Management which manages JF
Asia Select Limited, which owns more than 5% of the Company's outstanding
shares. In July 1993, JF Asia Select Limited purchased 258,075 Ordinary Shares
from the Company and an aggregate of 23,094 Ordinary Shares from certain other
shareholders at $2.92 per share. In December 1993, the Company sold 1,622,934
Ordinary Shares at $4.33 per share to a group of investors, including 264,843
Ordinary Shares to JF Asia Select Limited and 23,076 Ordinary Shares to Mr.
Sharp.
EMPLOYMENT AND CONSULTING AGREEMENTS
In July 1993 the Company entered into employment agreements with each of
Messrs. Tsui, Stradford and Goh. Under these agreements, Mr. Tsui is entitled to
receive an annual salary of S$344,539, Mr. Stradford is entitled to receive an
annual salary of $175,000 and Mr. Goh is entitled to receive an annual salary of
S$207,103. In March 1996 the Compensation Committee increased the base salaries
of Messrs. Stradford, Tsui and Goh to $191,000, S$390,359 and S$264,328,
respectively. The Company is required to pay each of Messrs. Tsui and Goh their
base salary for a period of 12 months upon their termination by the Company
without cause (as defined therein) or their resignation from the Company with
good reason (as defined therein); with respect to Mr. Stradford, the Company
agreed to pay a lump sum amount equal to his base salary for nine months or, if
longer, one month for each complete year of service subject to a maximum of 12
months.
The Compensation Committee has the authority to provide for the
acceleration of one or more options held by the Company's Chief Executive
Officer and other executive officers under the 1993 Plan in connection with a
change in control or the subsequent termination of the optionee's service with
the Company.
In connection with the Company's acquisition of Astron, the Company entered
into a Services Agreement (the "Services Agreement") with Astron Technologies
Limited, a subsidiary of the Company ("ATL") and Croton Technology Ltd., a
company under the management and control of Mr. Rees (the "Consultant Company"),
and Astron entered into a Supplemental Services Agreement (the "Supplemental
Services Agreement") with Mr. Rees. Since the acquisition, Mr. Rees has become a
Director of the Company and he continues to act as Chairman of Astron. Under the
terms of the Services Agreement, Mr. Rees will act
6
<PAGE> 10
as President of ATL and the Consultant Company will develop the business of ATL
through June 1998. The Services Agreement provides that the Consultant Company
will receive (i) a lump sum payment of $15 million on June 30, 1998, $5 million
of which is payable in cash and $10 million of which is payable in cash or the
Ordinary Shares of the Company at the option of the Company and (ii) an annual
fee in the amount of $90,000. The Services Agreement terminates on June 30, 1998
but may be terminated for cause under the terms described therein.
Pursuant to the terms of the Supplemental Services Agreement, Mr. Rees will
act as Chairman of Astron and be responsible for maintaining and developing the
business of Astron, and, in exchange, will receive annually a salary of
$140,000. The Supplemental Services Agreement terminates on June 30, 1998.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee (the "Committee") of the Board of Directors sets
the base salary of the Company's executive officers and approves individual
bonus programs for executive officers. The Committee took no action with respect
to executive compensation in fiscal 1996, other than approving certain year-end
bonuses earned in accordance with a bonus plan previously adopted by the Board
of Directors and authorizing salary increases to eight (8) executive officers.
Option grants to executive officers are made by the Committee, and the Committee
has complete discretion in establishing the terms of each such grant. The
following is a summary of policies of the Company that affect the compensation
paid to executive officers, as reflected in the tables and text set forth
elsewhere in this Proxy Statement.
GENERAL COMPENSATION POLICY
The Company's overall policy is to offer its executive officers cash-based
and equity-based compensation opportunities based upon their personal
performance, the financial performance of the Company and their contribution to
that performance. One of the Company's primary objectives is to have a
significant portion of each officer's compensation contingent upon the Company's
performance as well as upon his or her own level of performance.
The principal factors taken into account in establishing each executive
officer's compensation package are summarized below. Additional factors may be
taken into account to a lesser degree, and the relative weight given to each
factor varies with each individual in the discretion of the Committee. The
Committee may in its discretion apply entirely different factors, such as
different measures of financial performance, for future fiscal years.
Cash Based Compensation. The Company sets base salary for executive
officers on the basis of personal performance and internal comparability
considerations. The aggregate amount of the Company's annual bonus pool in
fiscal 1996 was based solely on net income. The bonus pool was allocated to
executive officers, including the Chief Executive Officer, in an amount equal to
approximately 30% of the total combined base salaries of all of the executive
officers. The Company also has a 401(k) retirement savings plan for U.S.
employees to which it can contribute a portion of profits and such contribution
is allocated to eligible participants in proportion to their total compensation
for the year relative to the total aggregate compensation for all eligible
participants. The Company believes that all employees share the responsibility
of achieving profits.
Long-Term Equity-Based Compensation. The Committee intends to make stock
option grants from time to time. Each grant is designed to align the interests
of the executive officer with those of the shareholders and provide each
individual with a significant incentive to manage the Company from the
perspective of an owner with an equity stake in the business. Each grant
generally allows the officer to acquire the Company's Ordinary Shares at a fixed
price per share (the market price on the grant date) over a specified period of
time (up to five (5) years), thus providing a return to the officer only if he
or she remains in the employ of the Company and the market price of the shares
appreciates over the option term. The size of the option grant to each executive
officer generally is set at a level that is intended to create a meaningful
opportunity for share ownership based upon the individual's current position
with the Company, but there is also taken into account the individual's
potential for future responsibility and promotion over the option term,
7
<PAGE> 11
the individual's personal performance in recent periods and the number of
options held by the individual at the time of grant. The relative weight given
to these factors varies with each individual in the sole discretion of the
Committee.
CEO Compensation. Mr. Marks' base salary is based on the Company's
expectation of his personal performance and comparisons to the base salaries of
other executive officers of the Company. With respect to Mr. Marks' base salary,
it is the Company's intent to provide him with a level of stability and
certainty each year and not have this particular component of compensation
affected to any significant degree by Company performance factors.
Deduction Limit for Executive Compensation. Recently enacted Section
162(m) of the Internal Revenue Code ("Section 162(m)") limits federal income tax
deductions for compensation paid to the Chief Executive Officer and the four
other most highly compensated officers of a public company to $1 million per
year, but contains an exception for performance-based compensation that
satisfies certain conditions.
The Company believes that stock options granted to its executives qualify
for the performance-based exception to the deduction limit.
Because it is unlikely that other compensation payable to any Company
executive would exceed the deduction limit in the near future and because final
regulations have not been issued under Section 162(m), the Committee has not yet
considered whether it will seek to qualify compensation other than options for
the performance-based exception or will prohibit the payment of compensation
that would exceed the deduction limit. However, in approving the amount and form
of compensation for Company executives, the Committee will continue to consider
all elements of cost to the Company of providing that compensation.
Submitted by the Compensation Committee of the Company's Board of
Directors:
Andrew W. Russell
Richard L. Sharp
8
<PAGE> 12
PERFORMANCE GRAPH
The following performance graph shows the percentage change in cumulative
total return to a holder of the Company's Ordinary Shares, assuming $100
invested, compared with the cumulative total return, assuming dividend
reinvestment, of the Standard & Poor's 500 Stock Index and the peer group
indicated below, during the period from March 18, 1994 (the date of the
Company's initial public offering) through March 29, 1996.
The comparisons in the graph below are based on historical data and are not
indicative of, or intended to forecast, the possible future performances of the
Company's Ordinary Shares.
COMPARISON OF 24 MONTH CUMULATIVE TOTAL RETURN*
AMONG FLEXTRONICS INTERNATIONAL LTD., THE S&P 500 INDEX AND A PEER GROUP
<TABLE>
<CAPTION>
FLEXTRONICS
MEASUREMENT PERIOD INTERNATIONAL S&P PEER
(FISCAL YEAR COVERED) LTD. 500 GROUP
<S> <C> <C> <C>
3/18/94 100 100 100
3/94 89 95 88
3/95 98 109 85
3/96 218 144 137
</TABLE>
* $100 INVESTED ON 03/18/94 IN STOCK, PEER GROUP
OR INDEX--INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING MARCH 31.
9
<PAGE> 13
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933 or the Securities Exchange Act
of 1934 which might incorporate future filings made by the Company under those
statutes, the preceding Compensation Committee Report on Executive Compensation
and the Performance Graph will not be incorporated by reference into any of
those prior filings; nor will such report or graph be incorporated by reference
into any future filings made by the Company under those statutes.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission (the "SEC") initial reports of ownership and reports of
changes in ownership of Ordinary Shares and other equity securities of the
Company. Additionally, officers, Directors and greater than ten-percent
shareholders are required by SEC regulations to furnish the Company with copies
of all Section 16(a) reports they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that there was compliance for the year ended March 31, 1996
with all Section 16(a) filing requirements applicable to the Company's officers,
Directors and greater than ten-percent (10%) beneficial owners except that Mr.
Marks filed three (3) late reports.
10
<PAGE> 14
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of March 31, 1996 regarding
the beneficial ownership of the Company's Ordinary Shares, by (i) each Director,
(ii) each executive officer named in the Summary Compensation Table and (iii)
all Directors and executive officers as a group. Unless otherwise indicated
below, the persons and entities named in the table have sole voting and sole
investment power with respect to all the shares beneficially owned, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME BENEFICIALLY OWNED OF TOTAL(1)
- ----------------------------------------------------------------- ------------------ -----------
<S> <C> <C>
Michael E. Marks................................................. 453,627(2) 3.45%
Tsui Sung Lam.................................................... 51,715(3) *
Dennis P. Stradford.............................................. 28,833(4) *
Goh Chan Peng.................................................... 27,974(5) *
Michael McNamara................................................. 68,870(6) *
Robert R.B. Dykes................................................ 33,950(7) *
Bernard J. Lacroute.............................................. 716,202(8) 5.44
Michael Moritz................................................... 788,562(9) 5.91
Andrew W. Russell................................................ 964,761(10) 7.33
Stephen J.L. Rees................................................ 45,801(11) *
Richard L. Sharp................................................. 730,528(12) 5.55
All directors and executive officers as a group (14 persons)..... 3,818,266(13) 27.27
</TABLE>
- ---------------
* Less than 1%
(1) Percentage ownership is based upon 13,168,041 Ordinary Shares outstanding
as of March 31, 1996. Unless otherwise indicated, the persons and entities
named above have sole voting and sole investment power with respect to all
of the shares listed as being beneficially owned by them, subject to
community property laws, where applicable.
(2) Includes 368,014 shares beneficially owned by Ironwood Capital (all of
which were distributed to its partners on or about May 16, 1996 in a
pro-rata distribution without consideration, at which time Mr. Marks
received 187,007 shares). Mr. Marks is a partner of Ironwood Capital and
may be deemed to share voting and investment power with respect to shares
beneficially owned by Ironwood Capital. Mr. Marks disclaims beneficial
ownership of such shares except for those shares in which he has a
pecuniary interest. Also includes 81,479 shares subject to options
exercisable within 60 days held by Mr. Marks.
(3) Includes 50,083 shares subject to options exercisable within 60 days held
by Mr. Tsui.
(4) Includes 7,833 shares subject to options exercisable within 60 days held by
Mr. Stradford.
(5) Includes 27,833 shares subject to options exercisable within 60 days held
by Mr. Goh.
(6) Includes 21,458 shares subject to options exercisable within 60 days held
by Mr. McNamara.
(7) Includes 33,750 shares subject to options exercisable within 60 days held
by Mr. Dykes.
(8) Includes 468,013 shares beneficially owned by Kleiner Perkins Caufield &
Byers ("KPCB") VI, L.P. and 71,793 shares held by KPCB VI Founders Fund,
L.P. for each of which KPCB VI Associates, L.P. is the general partner. Mr.
Lacroute is a general partner of KPCB VI Associates, L.P. Mr. Lacroute
disclaims beneficial ownership of such shares except to the extent of his
pecuniary interest therein. Also includes 33,750 shares subject to options
exercisable within 60 days held by Mr. Lacroute and 1,854 shares
beneficially owned by the Bernard and Ronni Lacroute Trust.
(9) Includes 708,389 shares beneficially owned by Sequoia Capital Growth Fund,
a limited partnership, and 46,423 shares held by Sequoia Technology
Partners III, a limited partnership. Mr. Moritz is a general partner of
Sequoia Partners (CF), which is the general partner of Sequoia Capital
Growth Fund, and Mr. Moritz is a limited partner of Sequoia Technology
Partners III. Mr. Moritz disclaims beneficial ownership of all such shares
except to the extent of his pecuniary interest therein. Also includes
23,750 shares subject to options exercisable within 60 days held by Mr.
Moritz.
(10) Includes 931,011 shares beneficially owned by JF Asia Select Limited. See
footnote 2 on page 12. Mr. Russell disclaims beneficial ownership over such
shares. Also includes 33,750 shares subject to options exercisable within
60 days held by Mr. Russell.
(11) Also includes 4,754 shares held by Mrs. Janine Margaret Rees.
(12) Includes 225,000 shares held by Bethany Limited Partnership. Mr. Sharp, the
general partner of Bethany Limited Partnership, may be deemed to share
voting and investment power with respect to such shares. Mr. Sharp
disclaims beneficial ownership of all such shares except to the extent of
his proportionate interest therein. Also includes 33,750 shares subject to
options exercisable within 60 days.
(13) Includes 309,785 shares subject to options exercisable within 60 days.
11
<PAGE> 15
PRINCIPAL SHAREHOLDERS
The following table sets forth information with respect to the only persons
who beneficially owned (to the Company's knowledge) more than 5% of the
Company's Ordinary Shares as of March 31, 1996. Unless otherwise indicated
below, the persons and entities named in the table have sole voting and sole
investment power with respect to all the shares beneficially owned, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED NUMBER PERCENT(1)
- ------------------------------------------------------------------- ------------------- ----------
<S> <C> <C>
JF Asia Select Limited(2).......................................... 964,761 7.33%
c/o Standard Chartered Bank
8th Floor, Edinburgh Tower
The Landmark
Central, Hong Kong
Capital Group(3)................................................... 845,000 6.42
11100 Santa Monica Blvd.
Los Angeles, California 90025
Sequoia Capital(4)................................................. 788,562 5.91
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, California 94025
Richard L. Sharp(5)................................................ 730,528 5.55
c/o Circuit City Stores, Inc.
9950 Mayland Drive
Richmond, Virginia 23233
Kleiner, Perkins, Caufield & Byers(6).............................. 716,202 5.44
2750 Sand Hill Road
Menlo Park, California 94025
</TABLE>
- ---------------
(1) Percentage ownership is based upon 13,168,041 registered Ordinary Shares as
of March 31, 1996.
(2) Jardine Fleming Investment Management Limited ("JFIM"), a corporation with a
board of directors comprised of twenty-six (26) individuals, manages JF Asia
Select Limited. Robert H.L. Thomas and Andrew Russell, a director and
employee, respectively, of JFIM have managerial responsibilities with
respect to assets of JF Asia Select Limited and, as such, may be deemed to
share voting and investment power over such shares. Messrs. Thomas and
Russell disclaim beneficial ownership over such shares.
(3) Comprised of 545,000 shares owned by SMALLCAP WORLDFUND, INC. and 300,000
shares owned by American Variable Insurance Series -- Growth Fund.
(4) Includes 708,389 shares held by Sequoia Capital Growth Fund, a limited
partnership, and 46,423 shares held by Sequoia Technology Partners III, a
limited partnership. Sequoia Partners (CF) is the general partner of Sequoia
Capital Growth Fund and has sole voting and investment power over such
shares. The general partners of Sequoia Partners (CF) are Donald T.
Valentine, Pierre R. Lamond, Thomas F. Stephenson, Michael J. Moritz and
Gordon Russell. The general partners of Sequoia Technology Partners III are
Donald T. Valentine, Pierre R. Lamond, Thomas F. Stephenson and Gordon
Russell.
(5) Includes 225,000 shares beneficially owned by Bethany Limited Partnership.
Mr. Sharp, the general partner of Bethany Limited Partnership, may be deemed
to share voting and investment power with respect to such shares. Mr. Sharp
disclaims beneficial ownership of all such shares except to the extent of
his proportionate interest therein. Also includes 33,750 shares subject to
options exercisable within 60 days held by Mr. Sharp.
(6) Includes 468,013 shares held by Kleiner Perkins Caufield & Byers ("KPCB")
VI, L.P. and 71,793 shares held by KPCB VI Founders Fund, L.P. KPCB VI
Associates, L.P. is the general partner of Kleiner Perkins Caufield & Byers
VI, L.P. and KPCB VI Founders Fund, L.P. and its general partners are Brook
H. Byers, L. John Doerr, Vinod Khosla, E. Floyd Kvamme, Joseph S. Lacob,
James P. Lally and Bernard J. Lacroute. Also includes 33,750 shares subject
to options exercisable within 60 days held by Mr. Lacroute and 1,854 shares
beneficially owned by the Bernard and Ronni Lacroute Trust.
12
<PAGE> 16
CERTAIN TRANSACTIONS
Venture capital entities affiliated with Kleiner Perkins Caufield & Byers
owned outstanding preferred shares of nCHIP, Inc. ("nCHIP") representing an
aggregate of approximately 18% of nCHIP's outstanding voting stock on a fully
diluted basis. Upon the acquisition of nCHIP by the Company in January 1995,
370,295 Ordinary Shares were issued to entities affiliated with Kleiner Perkins
Caufield & Byers in exchange for their nCHIP shares. The Company negotiated the
acquisition on an arms length basis with nCHIP. No appraisal of the value of the
nCHIP shares acquired was made.
In April 1995 Flextronics Technologies, Inc., a wholly-owned subsidiary of
the Company, loaned $500,000 to Michael E. Marks, the Company's Chairman and
Chief Executive Officer, pursuant to a promissory note (the "Note"). The Note
has a five year term and bears interest at a rate of 7.21% compounded
semi-annually.
In fiscal 1996 the Company had net sales of approximately $2.1 million to
Metcal, Inc., a precision heating instrument company. Prior to becoming the
Company's Chief Executive Officer in January 1994, Michael E. Marks was the
President and Chief Executive Officer of Metcal, Inc. The Company believes that
sales made to Metcal, Inc. were made on terms no less favorable to the Company
than those that could have been obtained from third parties.
In fiscal 1996, the Company had net sales of approximately $47 million to
Global Village Communication, Inc. ("Global Village"). Mr. Moritz, a Director of
the Company, is affiliated with Sequoia Capital, which through its affiliates
owns more than 10% of the outstanding shares of Global Village. Mr. Moritz is
also a director of Global Village. The Company believes that sales made to
Global Village were made on terms no less favorable to the Company than those
that could have been obtained from third parties.
Following the acquisition of Astron, its Managing Director, Stephen J.L.
Rees, was made a director of the Company on April 15, 1996. At the date of the
Astron acquisition a loan of $2,908,000 to Mayfield International Limited
("Mayfield"), a company in which Mr. Rees has a beneficial interest, was
outstanding. The loan is secured by a corporate guarantee from Mayfield's
holding company and it bears interest at 7.15% per annum. Astron has also rented
an office from Mayfield, and rentals charged to Astron during the period
amounted to $34,669. Additionally, on February 4, 1996, a Lease was executed
between Astron and Mayfield for the Hong Kong facility. The Company believes
that the Lease was made on terms no less favorable to Astron than those that
could have been obtained from third parties.
See "Employment and Consulting Agreements."
PROPOSAL 3:
TO RECEIVE AND ADOPT THE AUDITED ACCOUNTS OF THE COMPANY,
INCLUDING THE REPORTS OF THE DIRECTORS AND AUDITORS
The Company's Annual Report for the fiscal year ended March 31, 1996 (the
"Annual Report") accompanies this Proxy Statement. The Annual Report includes
the Company's United States dollar financial statements prepared in conformity
with United States generally accepted accounting principles. The Company's
Singapore dollar financial statements prepared in conformity with Singapore
generally accepted accounting principles also accompany this Proxy Statement.
The United States dollar financial statements and the Singapore dollar financial
statements are referred to herein collectively as the "Financial Statements."
The Financial Statements are accompanied by auditor's reports of Ernst & Young.
The Company publishes its consolidated financial statements in U.S. dollars,
which is the principal currency in which it conducts its business. The Company's
Singapore dollar financial statements have been prepared and circulated to
shareholders as a part of this Proxy Statement as required by Singapore law.
THE BOARD RECOMMENDS A VOTE FOR THE RECEIPT AND ADOPTION OF THE COMPANY'S
FINANCIAL STATEMENTS, INCLUDING THE DIRECTORS' REPORT AND AUDITOR'S REPORTS
INCLUDED THEREIN.
13
<PAGE> 17
PROPOSAL 4:
REAPPOINTMENT OF INDEPENDENT PUBLIC ACCOUNTANTS
AND AUTHORIZATION TO BOARD TO FIX THEIR REMUNERATION
The firm of Ernst & Young served as independent public accountants for the
Company for the fiscal year ended March 31, 1996. The Board of Directors intends
to engage Ernst & Young as independent public accountants to audit the accounts
and records of the Company for the fiscal year ending March 31, 1997, and to
perform other appropriate services. The Company does not expect that a
representative from Ernst & Young will be present at the Annual General Meeting.
THE BOARD RECOMMENDS A VOTE FOR THE REAPPOINTMENT OF ERNST & YOUNG FOR
FISCAL YEAR 1997 AND AUTHORIZATION FOR THE BOARD OF DIRECTORS TO FIX THEIR
REMUNERATION.
PROPOSAL 5:
ORDINARY RESOLUTION TO APPROVE THE INCREASE OF THE NUMBER
OF SHARES AUTHORIZED FOR ISSUANCE UNDER THE 1993 SHARE OPTION PLAN
The Company's shareholders are being asked to approve an amendment to the
1993 Share Option Plan (which was adopted by the Board of Directors and approved
by the shareholders in 1993) (the "1993 Plan") to increase the number of the
Company's Ordinary Shares authorized for issuance under the 1993 Plan by 500,000
shares, from 1,500,000 shares to 2,000,000 shares. The Board believes the share
increase is necessary for the Company to continue to have a sufficient reserve
of Ordinary Shares available under the 1993 Plan to attract and retain the
services of key individuals essential to the Company's long-term success.
THE BOARD RECOMMENDS A VOTE FOR THE APPROVAL TO THE AMENDMENT OF THE
COMPANY'S 1993 PLAN.
The following is a summary of the principal features of the 1993 Plan, as
most recently amended. The summary, however, does not purport to be a complete
description of all the provisions of the 1993 Plan. Any shareholder of the
Company who wishes to obtain a copy of the actual plan document may do so upon
written request to the Company at the Company's offices located at 2241 Lundy
Avenue, San Jose, California 95131.
EQUITY INCENTIVE PROGRAMS
The 1993 Plan contains two (2) separate equity incentive programs: (i) a
Discretionary Option Grant Program and (ii) an Automatic Option Grant Program.
The Discretionary Option Grant Program will be administered by the Compensation
Committee of the Board. This committee (the "Plan Administrator") will have
complete discretion (subject to the provisions of the 1993 Plan) to authorize
option grants under the 1993 Plan. However, all grants under the Automatic
Option Grant Program will be made in strict compliance with the provisions of
that program, and no administrative discretion will be exercised by the Plan
Administrator with respect to the grants made thereunder.
SHARE RESERVE
A total of 1,500,000 Ordinary Shares have been reserved for issuance over
the ten year term of the 1993 Plan. In no event may any one participant in the
1993 Plan be granted options or separately exercisable stock appreciation rights
for more than 500,000 Ordinary Shares in the aggregate over the term of the 1993
Plan after July 1, 1995.
In the event any change is made to the outstanding Ordinary Shares by
reason of any recapitalization, stock dividend, stock split, combination of
shares, exchange of shares or other change in corporate structure effected
without the Company's receipt of consideration, appropriate adjustments will be
made to the securities issuable (in the aggregate and to each participant) under
the 1993 Plan and to each outstanding option.
As of March 31, 1996, 1,055,683 Ordinary Shares were subject to outstanding
options and 362,830 shares were available for option grants under the 1993 Plan.
14
<PAGE> 18
ELIGIBILITY
Officers and other key employees of the Company and its parent or
subsidiaries (whether now existing or subsequently established) and consultants
and independent contractors of the Company and its parent and subsidiaries are
eligible to participate in the Discretionary Option Grant Program. Non-employee
members of the Board are only eligible to participate in the Automatic Option
Grant Program.
As of June 1, 1996 approximately nine (9) executive officers and 170 other
employees were eligible to participate in the 1993 Plan, and five (5)
non-employee Board members were eligible to participate in the Automatic Option
Grant Program.
VALUATION
The fair market value per Ordinary Share on any relevant date under the
1993 Plan is the closing selling price per share on that date on the Nasdaq
National Market. On June 20, 1996, the closing selling price per share was
$26.00.
DISCRETIONARY OPTION GRANT PROGRAM
Options may be granted under the Discretionary Option Grant Program at an
exercise price per share not less than eighty five percent (85%) of the fair
market value per Ordinary Share on the option grant date. No granted option will
have a term in excess of five (5) years.
Upon cessation of service, the optionee will have a limited period of time
in which to exercise any outstanding option to the extent such option is
exercisable for vested shares. The Plan Administrator will have complete
discretion to extend the period following the optionee's cessation of service
during which his or her outstanding options may be exercised and/or to
accelerate the exercisability or vesting of such options in whole or in part.
Such discretion may be exercised at any time while the options remain
outstanding, whether before or after the optionee's actual cessation of service.
The Plan Administrator is authorized to issue two (2) types of stock
appreciation rights in connection with option grants made under the
Discretionary Option Grant Program:
Tandem stock appreciation rights provide the holders with the right to
surrender their options for an appreciation distribution from the Company
equal in amount to the excess of (a) the fair market value of the vested
Ordinary Shares subject to the surrendered option over (b) the aggregate
exercise price payable for such shares. Such appreciation distribution may,
at the discretion of the Plan Administrator, be made in cash or in Ordinary
Shares.
Limited stock appreciation rights may be granted to officers of the
Company as part of their option grants. Any option with such a limited
stock appreciation right in effect for at least six (6) months may be
surrendered to the Company upon the successful completion of a hostile
take-over of the Company. In return for the surrendered option, the officer
will be entitled to a cash distribution from the Company in an amount per
surrendered option share equal to the excess of (a) the take-over price per
share over (b) the exercise price payable for such share.
The Plan Administrator will have the authority to effect the cancellation
of outstanding options under the Discretionary Option Grant Program which have
exercise prices in excess of the then current market price of Ordinary Shares
and to issue replacement options with an exercise price based on the market
price of Ordinary Shares at the time of the new grant.
AUTOMATIC OPTION GRANT PROGRAM
Under the Automatic Option Grant Program, each individual who was serving
as a non-employee Board member on January 24, 1994 was automatically granted at
that time an option grant for 30,000 Ordinary Shares. Each individual who first
becomes a non-employee Board member after such date, will automatically be
granted at that time an option grant for 30,000 Ordinary Shares. In addition, on
the date of each Annual
15
<PAGE> 19
General Meeting, beginning with the 1994 Annual General Meeting, each individual
who is at that time serving as a non-employee Board member, whether or not such
individual is standing for reelection, will automatically be granted an option
to purchase 3,000 Ordinary Shares, provided such individual has served as a
non-employee Board member for at least six (6) months. There will be no limit on
the number of such 3,000-share options which any one non-employee Board member
may receive over the period of Board service. However, a non-employee Board
member who is a resident of Singapore is not eligible to participate in the
Automatic Option Grant Program.
Each option will have an exercise price per share equal to 100% of the fair
market value per Ordinary Share on the option grant date and a maximum term of
five (5) years measured from the option grant date.
Each option will become exercisable for the option shares in twenty-four
(24) equal monthly installments over the optionee's period of Board service,
with the first such installment to become exercisable upon the completion of one
(1) month of Board service measured from the option grant date.
Each automatic option grant will automatically accelerate upon the
optionee's death or permanent disability or upon an acquisition of the Company
by merger or asset sale or a hostile change in control of the Company. In
addition, upon the successful completion of a hostile take-over, each automatic
option grant which has been outstanding for at least six (6) months may be
surrendered to the Company for a cash distribution per surrendered option share
in an amount equal to the excess of (a) the take-over price per share over (b)
the exercise price payable for such share.
GENERAL PROVISIONS
ACCELERATION
In the event that the Company is acquired by merger or asset sale, each
outstanding option under the Discretionary Option Grant Program which is not to
be assumed by the successor corporation or replaced with a comparable option to
purchase shares of the capital stock of the successor corporation will
automatically accelerate in full. The Plan Administrator has the discretionary
authority to accelerate any options assumed or replaced in connection with such
acquisition upon the subsequent termination of the optionee's service within a
designated period following the acquisition. In connection with a hostile change
in control of the Company (whether by successful tender offer for more than 50%
of the outstanding voting stock or by proxy contest for the election of Board
members), the Plan Administrator will have the discretionary authority to
provide for automatic acceleration of outstanding options under the
Discretionary Grant Program either at the time of such change in control or upon
the subsequent termination of the optionee's service.
The acceleration of vesting in the event of a change in the ownership or
control of the Company may be seen as an anti-takeover provision and may have
the effect of discouraging a merger proposal, a takeover attempt or other
efforts to gain control of the Company.
FINANCIAL ASSISTANCE
The Plan Administrator may permit one or more optionees to pay the exercise
of outstanding options under the 1993 Plan by delivering a promissory note
payable in installments. The Plan Administrator will determine the terms of any
such promissory note. However, the maximum amount of financing provided any
optionee may not exceed the cash consideration payable for the purchased shares
plus all applicable taxes incurred in connection with the acquisition of the
shares. Any such promissory note may be subject to forgiveness in whole or in
part, at the discretion of the Plan Administrator, over the optionee's period of
service.
AMENDMENT AND TERMINATION
The Board may amend or modify the 1993 Plan in any or all respects
whatsoever subject to any required shareholder approval. The Board may terminate
the 1993 Plan at any time, and the 1993 Plan will in all events terminate on
November 30, 2003.
16
<PAGE> 20
STOCK AWARDS
The table below shows, as to each of the Company's executive officers named
in the Summary Compensation Table and the various indicated individuals and
groups, the number of Ordinary Shares subject to options granted between April
1, 1995 and March 31, 1996 under the 1993 Plan together with the weighted
average exercise price payable per share.
STOCK AWARDS TABLE
<TABLE>
<CAPTION>
WEIGHTED
NUMBER OF AVERAGE
NAME OPTION SHARES EXERCISE PRICE
- -------------------------------------------------------------------- ------------- --------------
<S> <C> <C>
Michael E. Marks.................................................... 150,000 $14.75
Chairman of the Board and Chief Executive Officer
Tsui Sung Lam....................................................... 40,000 14.75
President and Chief Operating Officer
Dennis P. Stradford................................................. 10,000 14.75
Senior Vice President of Sales and Marketing
Goh Chan Peng....................................................... 15,000 21.75
Chief Financial Officer
Michael McNamara.................................................... 15,000 21.75
Vice President, President of U.S. Operations
All current executive officers as a group (9 persons)............... 320,000 19.34
All non-employee directors as a group (5 persons)................... 15,000 23.75
All employees, excluding current officers and non-executive officers 291,783 22.32
as a group (170 persons)..........................................
</TABLE>
FEDERAL INCOME TAX CONSEQUENCES
OPTION GRANTS
Options granted under the 1993 Plan may be either incentive stock options
which satisfy the requirements of Section 422 of the Internal Revenue Code or
non-statutory options which are not intended to meet such requirements. The
Federal income tax treatment for the two types of options differs as follows:
Incentive Stock Options. No taxable income is recognized by the optionee
at the time of the option grant, and no taxable income is generally recognized
at the time the option is exercised. The optionee will, however, recognize
taxable income in the year in which the purchased shares are sold or otherwise
disposed of. For Federal tax purposes, dispositions are divided into two
categories: (i) qualifying and (ii) disqualifying. A qualifying disposition
occurs if the sale or other disposition is made after the optionee has held the
shares for more than two years after the option grant date and more than one
year after the exercise date. If either of these two holding periods is not
satisfied, then a disqualifying disposition will result.
If the optionee makes a disqualifying disposition of the purchased shares,
then the Company will be entitled to an income tax deduction, for the taxable
year in which such disposition occurs, equal to the excess of (i) the fair
market value of such shares on the option exercise date over (ii) the exercise
price paid for the shares. In no other instance will the Company be allowed a
deduction with respect to the optionee's disposition of the purchased shares.
Non-Statutory Options. No taxable income is recognized by an optionee upon
the grant of a non-statutory option. The optionee will in general recognize
ordinary income, in the year in which the option is exercised, equal to the
excess of the fair market value of the purchased shares on the exercise date
over the exercise price paid for the shares, and the optionee will be required
to satisfy the tax withholding requirements applicable to such income.
17
<PAGE> 21
If the shares acquired upon exercise of the non-statutory option are
unvested and subject to repurchase by the Company in the event of the optionee's
termination of service prior to vesting in those shares, then the optionee will
not recognize any taxable income at the time of exercise but will have to report
as ordinary income, as and when the Company's repurchase right lapses, an amount
equal to the excess of (i) the fair market value of the shares on the date the
repurchase right lapses over (ii) the exercise price paid for the shares. The
optionee may, however, elect under Section 83(b) of the Internal Revenue Code to
include as ordinary income in the year of exercise of the option an amount equal
to the excess of (i) the fair market value of the purchased shares on the
exercise date over (ii) the exercise price paid for such shares. If the Section
83(b) election is made, the optionee will not recognize any additional income as
and when the repurchase right lapses.
The Company will be entitled to an income tax deduction equal to the amount
of ordinary income recognized by the optionee with respect to the exercised
non-statutory option. The deduction will in general be allowed for the taxable
year of the Company in which such ordinary income is recognized by the optionee.
STOCK APPRECIATION RIGHTS
An optionee who is granted a stock appreciation right will recognize
ordinary income in the year of exercise equal to the amount of the appreciation
distribution. The Company will be entitled to an income tax deduction equal to
the appreciation distribution for the taxable year in which such ordinary income
is recognized by the optionee.
ACCOUNTING TREATMENT
Option grants with exercise prices less than the fair market value of the
shares on the grant date will result in a compensation expense to the Company's
earnings equal to the difference between the exercise price and the fair market
value of the shares on the grant date. Such expense will be accruable by the
Company over the period that the option shares are to vest. Option grants at
100% of fair market value will not result in any charge to the Company's
earnings. Whether or not granted at a discount, the number of outstanding
options may be a factor in determining the Company's earnings per share on a
fully-diluted basis.
Should one or more optionees be granted stock appreciation rights which
have no conditions upon exercisability other than a service or employment
requirement, then such rights will result in a compensation expense to the
Company's earnings.
NEW PLAN BENEFITS
Under the Automatic Option Grant Program, 3,000 shares are expected to
granted to Messrs. Sharp, Russell, Dykes, Lacroute and Moritz on the date of the
Annual General Meeting at an exercise price per share equal to the closing
selling price per Ordinary Share on that date on the Nasdaq National Market.
SHAREHOLDER APPROVAL
The affirmative vote of the holders of a majority of the issued shares of
the Company present in person or by proxy at the Annual General Meeting is
required for approval of the amendment to the 1993 Plan.
18
<PAGE> 22
PROPOSAL 6:
ORDINARY RESOLUTION TO APPROVE VARIOUS MATTERS
RELATING TO ORDINARY SHARE ISSUANCES
The Company is incorporated in the Republic of Singapore. Under Singapore
law, new Ordinary Shares may only be issued with the prior approval of the
shareholders of the Company at a general meeting. Such approval, if granted, is
effective from the date of the meeting at which it was given to the date of the
next Annual General Meeting of Shareholders of the Company. The Board believes
that it is advisable and in the best interest of the Company for the
shareholders to authorize the Directors to issue new shares for future financing
transactions, acquisitions and other proper corporate opportunities and
purposes. Having additional shares available and authorized for issuance in the
future gives the Company greater flexibility to pursue corporate opportunities
and enables the Directors to issue new shares without the expense and delay of
an extraordinary general meeting of shareholders.
The Company is seeking shareholder approval to issue new Ordinary Shares
during the period from the 1996 Annual General Meeting Date to the 1997 Annual
General Meeting Date. If obtained, shareholder approval of this proposal will
lapse on the 1997 Annual General Meeting Date.
THE BOARD RECOMMENDS A VOTE FOR THE RESOLUTION RELATING TO ORDINARY SHARE
ISSUANCES.
SHAREHOLDER PROPOSALS
Shareholder proposals intended to be considered at the next Annual General
Meeting of Shareholders must be received by the Company no later than February
25, 1997. Any proposals must be mailed to the Company's San Jose, California
offices, 2241 Lundy Avenue, San Jose, California 95131, Attention: Chief
Executive Officer. Such proposals may be included in next year's proxy statement
if they comply with certain rules and regulations promulgated by the Securities
and Exchange Commission.
OTHER MATTERS
Management does not know of any matters to be presented at this Annual
General Meeting other than those set forth herein and in the Notice accompanying
this Proxy Statement.
It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. YOU ARE, THEREFORE, URGED TO EXECUTE
PROMPTLY AND RETURN THE ACCOMPANYING PROXY IN THE ENVELOPE WHICH HAS BEEN
ENCLOSED FOR YOUR CONVENIENCE. Shareholders who are present at the meeting may
revoke their proxies and vote in person or, if they prefer, may abstain from
voting in person and allow their proxies to be voted.
By Order of the Board of Directors,
Yap Lune Teng
Joint Secretary
June 25, 1996
Singapore
19
<PAGE> 23
DIRECTORS' REPORT AND AUDITED FINANCIAL STATEMENTS
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
31 MARCH 1996
<PAGE> 24
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
DIRECTORS' REPORT AND AUDITED FINANCIAL STATEMENTS
DIRECTORS
Michael E. Marks
Tsui Sung Lam
Andrew W. Russell
Richard L. Sharp
Michael J. Moritz
Bernard J. Lacroute
Robert Roscoe Bernard Dykes
Stephen J.L. Rees (Appointed on 15 April 1996)
SECRETARIES
Choo Wai Hong
Patricia Seet Geok Neo
Yap Lune Teng
REGISTERED OFFICE
36 Robinson Road #18-01
City House
Singapore 068877
AUDITORS
Ernst & Young
INDEX
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
Report of the directors.............................................................. 1-9
Statement by directors............................................................... 10
Report of the auditors............................................................... 11
Profit and loss accounts............................................................. 12
Balance sheets....................................................................... 13
Consolidated statement of cash flows................................................. 14-16
Notes to the accounts................................................................ 17-31
</TABLE>
<PAGE> 25
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
REPORT OF THE DIRECTORS
The directors have pleasure in presenting their report together with the
audited accounts of the company and of the group for the financial year ended 31
March 1996.
PRINCIPAL ACTIVITIES
The company is principally engaged in investment holding. The activities of
the subsidiary companies are in the design, assembly and manufacture of computer
industrial grade printed circuit boards sub-assemblies, products that require
advanced electronic packaging and the manufacture of multi-chip modules; systems
assembly and testing; and trading of components.
RESULTS FOR THE FINANCIAL YEAR
<TABLE>
<CAPTION>
GROUP COMPANY
-------- --------
$'000 $'000
<S> <C> <C>
Loss for the year transferred to accumulated losses.................... $(25,003) $(66,723)
======= =======
</TABLE>
In the opinion of the directors of the company, the results of the
operations of the company and of the group during the financial year have not
been substantially affected by any item, transaction or event of a material and
unusual nature except as disclosed in the accounts.
TRANSFERS TO/FROM RESERVES AND PROVISIONS
<TABLE>
<CAPTION>
GROUP COMPANY
------- --------
$'000 $'000
<S> <C> <C>
The following amounts have been credited/(debited) to:
ACCUMULATED LOSSES
Exchange difference arising on translation............................. $(1,949) $ (699)
SHARE PREMIUM ACCOUNT
Premium on issue of ordinary shares.................................... 44,230 44,230
Expenses on issuance of shares......................................... (1,649) (1,649)
======= =======
</TABLE>
DIVIDENDS
No dividend has been declared or paid since the end of the previous
financial year of the company. The directors of the company do not recommend
that a final dividend be paid for the current financial year.
SHARE CAPITAL
The company issued the following shares of $0.01 each during the financial
year:
(a) 1,000,000 Ordinary Shares for cash at a premium of $32,889,000 in
respect of the secondary listing.
(b) 305,592 Ordinary Shares as part consideration on the purchase of
subsidiaries.
(c) 304,201 Ordinary Shares for cash at a premium of $1,410,000 by
virtue of the exercise of share options previously granted.
There were no debentures issued by the company or any corporation in the
group during the financial year.
-1-
<PAGE> 26
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
REPORT OF THE DIRECTORS (CONTINUED)
ACQUISITION AND DISPOSAL OF SUBSIDIARIES
The following subsidiaries were acquired during the year:
<TABLE>
<CAPTION>
IN PROCESS
NET TANGIBLE RESEARCH &
ASSETS/(LIABILITIES) DEVELOPMENT AND
INTEREST ON DATE OF INTANGIBLE
NAME OF COMPANY ACQUIRED ACQUISITION ASSETS CONSIDERATION
- ------------------------------------- -------- -------------------- --------------- -------------
US$'000 US$'000 US$'000
<S> <C> <C> <C> <C>
Assembly & Automation (Electronics)
Ltd. .............................. 100% (604) 237 4,057
Astron Group Limited................. 100% 16,960 31,813 48,773
Subsidiaries held by Astron Group
Limited:
Astron Group (China) Ltd. ........... 96.25%
Hiromichi Limited.................... 100%
</TABLE>
During the year, Astron Technologies Limited was incorporated with 2
ordinary shares of $1 each at par for cash. Astron Technologies Limited is a
subsidiary of the Company.
There was no disposal of any subsidiary during the financial year.
DIRECTORS OF THE COMPANY
The directors of the company in office at the date of this report are:
Michael E. Marks
Tsui Sung Lam
Andrew W. Russell
Richard L. Sharp
Michael J. Moritz
Bernard J. Lacroute
Robert Roscoe Bernard Dykes
Stephen J.L. Rees (Appointed on 15 April 1996)
-2-
<PAGE> 27
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
REPORT OF THE DIRECTORS (CONTINUED)
The following directors who held office at the end of the financial year
had, according to the register required to be kept under Section 164 of the
Companies Act, Cap. 50, an interest in shares of the company or the company's
subsidiaries, as stated below:
<TABLE>
<CAPTION>
NAME OF DIRECTOR AND COMPANY IN WHICH INTERESTS AT BEGINNING OF AT END OF
ARE HELD FINANCIAL YEAR FINANCIAL YEAR
------------------------------------------------- --------------- --------------
<S> <C> <C>
Interest in the company's Ordinary Shares of
$0.01 each
Mr. Michael E. Marks........................... 500 10,000
Mr. Tsui Sung Lam.............................. 6,632 1,632
Mr. Richard L. Sharp........................... 483,153 471,778
Mr. Michael J. Moritz.......................... -- 10,000
Mr. Bernard J. Lacroute........................ -- 1,854
Mr. Robert R. B. Dykes......................... -- 200
Interest in options to acquire Ordinary Shares of
$0.01 each
Mr. Michael E. Marks........................... 100,000 242,000
Mr. Tsui Sung Lam.............................. 97,000 97,000
Mr. Andrew W. Russell.......................... 33,000 36,000
Mr. Richard L. Sharp........................... 33,000 36,000
Mr. Michael J. Moritz.......................... 33,000 26,000
Mr. Bernard J. Lacroute........................ 33,000 36,000
Mr. Robert R. B. Dykes......................... 33,000 36,000
</TABLE>
Since the end of the previous financial year, except as disclosed above and
in the accompanying accounts, no director of the company has received or become
entitled to receive a benefit by reason of a contract made by the company or a
related corporation with the director or with a firm of which he is a member, or
with a company in which he has a substantial financial interest.
Neither at the end of the financial year, nor at anytime during that year,
did there subsist any arrangements, to which the company is a party, whereby
directors might acquire benefits by means of the acquisition of shares in, or
debentures of, the company or any other body corporate except for those
disclosed under the options mentioned above.
SHARE OPTION PLANS
The company and a subsidiary company approved on 14 June 1990 a Share
Option Plan ("SOP") which would enable management staff of subsidiary companies
to acquire 'B' Convertible Preference shares of $1 each in a subsidiary company
at a price to be determined by the Board of Directors from time to time. The
company also had an Incentive Share Plan ("ISP") whereby management staff
including executive directors are eligible for allocation of incentive shares
when certain performance targets are met. These schemes were terminated during
the financial year ended 31 March 1994.
In July 1993, the company adopted an Executives' Share Option Scheme
("SOS") and an Executives' Incentive Share Scheme ("ISS") to supersede and
replace the SOP and ISP respectively. The SOS and ISS are for selected
management employees of the company. Both plans are valid for ten years until 8
July 2003 but may be extended subject to certain approvals. In July 1993, the
company granted stock options for 116,640 Ordinary Shares exercisable at US$8.75
per share under the SOS to selected management employees and stock options for
19,078 Ordinary Shares at $0.01 per share under the ISS to selected management
employees. As a result of the 2 for 1 bonus issue during the financial year
ended 31 March 1994, the following adjustments
-3-
<PAGE> 28
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
REPORT OF THE DIRECTORS (CONTINUED)
were made in February 1994 to the number of shares under option and the
subscription price of such options by the Committee administering the SOS and
the ISS in accordance with the Rules of the SOS and ISS :
(i) In respect of the SOS, stock options for 344,520 Ordinary Shares,
net of cancellation of options, at a subscription price of US$2.92; and
(ii) In respect of the ISS, stock options for 54,618 Ordinary Shares,
net of cancellation of options, at a subscription price of $0.01.
The objective of the SOS is to provide an opportunity to selected
management employees of the company to have an equity interest in the company.
Under the SOS, an option is exercisable at a rate in each calendar month of 1/48
of the total number of shares over which an option has been granted, beginning
one year after the grant date. For options granted upon the adoption of the SOS,
such calendar month is deemed to have commenced on the later of 1 July, 1992 or
the calendar month in which the employee began employment. For other options
granted, such calendar month will commence in the calendar month in which such
options were granted. The options granted under the SOS become exercisable on 8
July 1994 by notice in writing to the company accompanied by a remittance for
the aggregate subscription cost and expire on 8 July 1998 unless any such option
has lapsed by reason of the cessation of the employee's employment with the
company or the employee's death. As at 31 March 1996, the number and class of
unissued shares under these options granted under the SOS were 82,141, net of
cancellation of options for 1,989 Ordinary Shares, as 101,250 Ordinary Shares
have been issued during the financial year by virtue of the exercise of such
options, whether granted before or during the financial year.
In December, 1993, the company adopted the 1993 Share Option Plan (the
"Plan"). The Plan is divided into two components: the discretionary option grant
program and the automatic option grant program. The discretionary option grant
program provides for the grant of options to purchase Ordinary Shares of the
company to key employees (including officers and directors) and certain
consultants of the company or its parent or subsidiary corporations. The
automatic option grant program provides for the automatic grant of options to
non-employee Board members who do not reside in Singapore.
At 31 March 1995, 900,000 Ordinary Shares have been authorised for issuance
under the Plan. During the financial year a further 600,000 Ordinary shares were
authorised under the Plan. The Plan provides for the grant of incentive stock
options which qualify for favourable tax treatment under the U.S. federal tax
laws and non-statutory options which do not so qualify. Only employees may be
granted incentive stock options. The exercise price of incentive stock options
and of automatic option grants may not be less than 100% of the fair market
value of the Ordinary Shares on the date of grant. The exercise price of
non-statutory options must be at least 85% of fair market value on the date of
grant.
The discretionary option grant program is administered by the Compensation
Committee ( the "Committee"). The Committee as Plan Administrator has complete
discretion to determine eligible individuals, the number of shares subject to a
discretionary grant, the status of an option as either an incentive option or a
non-statutory option, the vesting schedule and the maximum term for which any
discretionary option is to remain outstanding. The automatic option grant
program is self-executing.
Pursuant to the automatic option grant program each non-employee Board
member who does not reside in Singapore will be granted an option to purchase
30,000 Ordinary Shares upon initially joining the Board. Thereafter, each such
non-employee Board member is to be awarded annually an option to purchase 3,000
Ordinary Shares. Such options will be granted at the fair market value on the
date of grant.
Options granted under the Plan may become exercisable in one or more
installments over the participant's period of service. The Plan Administrator
has full authority to accelerate the exercisability of any outstanding option or
the vesting of any issued shares.
-4-
<PAGE> 29
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
REPORT OF THE DIRECTORS (CONTINUED)
No option may have a term in excess of 5 years and each option will be
subject to earlier termination in the event of the optionee's cessation of
service with the company. Outstanding options will not be transferable other
than in connection with the optionee's death. The Plan will terminate ten years
from the effective date, unless sooner terminated by the Board of Directors of
the company (the "Board").
In the event of a "corporate transaction," each option outstanding under
the discretionary option grant program which is not to be assumed by the
successor corporation or replaced with a comparable option to purchase the
capital stock of the successor corporation will automatically accelerate in
full, except as limited by the terms of the agreements evidencing those options.
Each outstanding automatic option grant will also automatically accelerate in
full, whether or not such grant is to be assumed or replaced. A "corporate
transaction" includes certain mergers, acquisitions and sales or other
dispositions of all or substantially all of the assets of the company.
The Plan Administrator also has authority to provide for the automatic
acceleration of outstanding discretionary option grants prior to a "change in
control." A "change in control" includes (i) an acquisition of more than 50% of
the company's outstanding voting stock pursuant to a hostile tender or exchange
offer or (ii) a change in the composition of the Board effected through a
contested election of Board members. The Committee has similar discretion to
provide for the immediate vesting of unvested options upon such a "change in
control." Each outstanding automatic option grant will also automatically
accelerate in full upon such a "change in control."
The Plan Administrator may effect the cancellation of outstanding options
under the discretionary option grant program in return for the grant of new
options for the same or a different number of option shares at an exercise price
per share not less than 85% of the fair market value of the Ordinary Shares on
the new grant date.
In December, 1993, options to subscribe for 233,790 Ordinary Shares had
been granted under the Plan at an exercise price of US$4.33 per share (fair
market value at the date of grant) to a selected group of management employees.
Such options expire on 1 December 1998 unless earlier terminated as mentioned
above. Additional options to purchase 150,000 Ordinary Shares at an exercise
price of US$6.67 per share were granted in January 1994 to five non-employee
Board members. Such options expire on 24 January 1998 unless earlier terminated
as mentioned above.
During the financial year ended 31 March 1996, the following options were
granted pursuant to the Plan in respect of 641,783 unissued Ordinary Shares of
$0.01 each of the company:
<TABLE>
<CAPTION>
NUMBER OF
GRANT DATE EXPIRY DATE SHARE OPTION EXERCISE PRICE
- ---------- ----------- ------------ --------------
US$
<S> <C> <C> <C>
10.4.1995 09.4.2000 371,150 14.75
09.5.1995 08.5.2000 20,000 15.50
01.6.1995 30.5.2000 20,000 18.00
08.6.1995 07.6.2000 11,200 17.9375
26.6.1995 25.6.2000 11,500 20.125
24.7.1995 23.7.2000 5,000 24.625
18.8.1995 17.8.2000 15,000 23.75
19.9.1995 18.9.2000 23,100 24.00
04.1.1996 03.1.2001 30,020 27.00
22.3.1996 21.3.2001 134,813 35.75
=======
641,783
</TABLE>
-5-
<PAGE> 30
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
REPORT OF THE DIRECTORS (CONTINUED)
As at 31 March 1996, the number of unissued shares under these options
granted under the Plan were 1,055,683 Ordinary Shares, net of cancellation of
options for 20,625 Ordinary Shares, as 76,187 Ordinary shares under these
options have been issued during the financial year by virtue of the exercise of
such options, whether granted before or during the financial year. The exercise
price of these options become due in cash or on a cashless basis upon exercise
of the options.
The persons to whom options under the SOS, ISS or the Plan have been
granted do not have any right to participate by virtue of the options, in any
share issue of any other company.
In January 1995, the company acquired 100% interest in nCHIP, Inc., in
consideration for the issue of an aggregate of up to 2,450,000 Ordinary Shares
of $0.01 each including the issue of the proportionate number of such shares to
nCHIP employees who had been granted nCHIP employee stock options under the
nCHIP Stock Option Plan, adopted by the company, and which were outstanding at
such time and assumed by the company and converted in the acquisition into
options to purchase approximately 345,389 Ordinary Shares of the company.
Following the assumption of the nCHIP Stock Option Plan in the acquisition,
the Compensation Committee of the company's Board of Directors will serve as the
plan administrator and will have full power and authority to interpret the
provisions of the nCHIP Stock Option Plan and the assumed options so converted
at the time of the acquisition and to resolve all questions relating to the
terms and conditions of those options.
Under the nCHIP Stock Option Plan, options may be granted to key employees
(including officers and directors) of nCHIP and its parent and subsidiary
corporations and to independent consultants who are not residents of Singapore.
However, following the acquisition, the company does not intend to make any new
option grants under the nCHIP Stock Option Plan other than to effect the
assumption of the nCHIP options in the acquisition.
The outstanding options under the nCHIP Stock Option Plan may be either
incentive stock options designed to meet the requirements of Section 422 of the
Internal Revenue Code of 1986 of the United States of America or non-statutory
stock options not intended to satisfy such requirements. Each outstanding
incentive stock option has an exercise price per share not less than one hundred
percent (100%) of the fair market value of the nCHIP Common Stock on the
original grant date. For non-statutory stock options, the exercise price per
share is not less than eighty-five percent (85%) of such fair market value. In
no event, however, will any option assumed by the company have an exercise price
per share less than the par value per Ordinary Share subject to that assumed
option. The exercise price may be paid in cash or, at the discretion of the plan
administrator, pursuant to a deferred payment arrangement. Any financial
assistance provided shall be effected in compliance with the applicable
provisions of Section 76(9)(b) of the Companies Act, Cap. 50, or any successor
statutory provision.
No assumed option will have a term in excess of five (5) years from the
effective date of the acquisition, provided that in no event will any assumed
option be outstanding from its original date of grant by nCHIP for a term in
excess of ten (10) years. However, any outstanding options held by the optionee
at the time of cessation of service will normally not remain exercisable beyond
the limited post-service period designated in the option agreement (normally
ranging from a minimum of 30 days to a maximum of 18 months based upon the
reason for such cessation of service). During that period, the option will
generally be exercisable only for the number of shares for which the option is
exercisable at the time of the optionee's cessation of service. For purposes of
the nCHIP Stock Option Plan, an individual will be deemed to continue in service
for so long as that person performs services for nCHIP or any parent or
subsidiary corporation of the Combined Company as defined therein, whether as an
employee or independent consultant.
-6-
<PAGE> 31
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
REPORT OF THE DIRECTORS (CONTINUED)
The plan administrator will have complete discretion to accelerate the
exercisability of outstanding options in whole or in part. Such discretion may
be exercised at any time while the options remain outstanding, whether before or
after the optionee's actual cessation of service.
Outstanding options held by any existing optionee who does not enter into
an amendment to his or her option agreement providing for certain changes
required to comply with Singapore law will not be assumed by the company in the
acquisition but will instead accelerate in full immediately prior to the
acquisition and will terminate, to the extent not exercised, immediately after
the acquisition. It is a condition to the company's obligation to effect the
acquisition that optionees (including all officers of nCHIP) who hold in the
aggregate options to purchase at least 90% of the shares of nCHIP Common Stock
issuable pursuant to the outstanding nCHIP options enter into such amendments to
their option agreements.
Outstanding options assumed by the company under the nCHIP Stock Option
Plan will not accelerate in connection with the acquisition and will continue to
become exercisable in accordance with the exercise schedule in effect for each
option immediately prior to the acquisition. In the event the company is
subsequently acquired by merger, each assumed option outstanding at that time
under the nCHIP Stock Option Plan will either be assumed by the successor
corporation or replaced with a comparable option to purchase shares of the
capital stock of the successor corporation. However, should the successor
corporation elect not to assume or replace those options in connection with such
acquisition, then each outstanding option will automatically become fully and
immediately exercisable for all the Ordinary Shares at the time subject to that
option.
The acceleration of options in the event of a corporate acquisition may be
seen as an anti-takeover provision and may have the effect of discouraging a
merger proposal, a takeover attempt or other efforts to gain control of the
company.
In the event any change is made to the outstanding Ordinary Shares by
reason of any recapitalisation, stock dividend, stock split, liquidating
dividend, dividend in property other than cash, combination of shares, exchange
of shares or other change in corporate structure effected without receipt of
consideration by the company appropriate adjustments will be made to the number
and/or class of securities and price per share in effect under each assumed
option outstanding at that time.
The fair market value of the company's Ordinary Shares issuable upon
exercise of assumed options on any relevant date will be the closing selling
price per share on that date on the Nasdaq National Market. If there are no
reported sales for such date, then the closing selling price for the last
previous date for which such quotation exists will be determinative of fair
market value.
The company's Board of Directors may amend or modify the assumed nCHIP
Stock Option Plan in any or all respects whatsoever. However, no such amendment
may, without the approval of the company's shareholders (i) increase the maximum
number of shares issuable under the nCHIP Stock Option Plan, except to reflect
certain changes in the company's capital structure, (ii) materially modify the
eligibility requirements for option grants or (iii) otherwise materially
increase the benefits accruing to participants under the nCHIP Stock Option
Plan. The company's Board of Directors may terminate the nCHIP Stock Option Plan
at any time and the nCHIP Stock Option Plan will in all events terminate on
August 25, 1998. Each assumed option outstanding at the time of such termination
will remain in force in accordance with the provisions of the agreements
evidencing such grant.
Following the acquisition, a maximum of 345,389 Ordinary Shares of the
company will be subject to the nCHIP options assumed by the company in the
acquisition at a weighted average exercise price of $1.74 payable per Ordinary
Shares.
The date of expiration of such options would be 26 January 2000.
-7-
<PAGE> 32
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
REPORT OF THE DIRECTORS (CONTINUED)
As at 31 March 1996, the number of unissued shares under these options
granted under nCHIP Stock Option Plan were 169,236, net of cancellation of
options for 48,472 Ordinary Shares, as 126,764 Ordinary Shares under these
options have been issued during the financial year by virtue of the exercise of
such options, whether granted before or during the financial year.
The persons to whom options under nCHIP Stock Option Plan have been granted
do not have any right to participate by virtue of the options, in any share
issue of any other company.
ASSET VALUES
Before the profit and loss account and balance sheet of the company were
made out, the directors of the company took reasonable steps to ascertain that:
(a) action had been taken in relation to the writing off of bad debts
and the making of provision for doubtful debts and satisfied themselves
that all known bad debts had been written off and that adequate provision
had been made for doubtful debts; and
(b) any current assets which were unlikely to realise their book value
in the ordinary course of business had been written down to their estimated
realisable values or adequate provision had been made for the difference
between those values.
At the date of this report, the directors of the company are not aware of
any circumstances which would render:
(a) any amount written off for bad debts or the amount of the
provision for doubtful debts in the group inadequate to any substantial
extent; and
(b) the values attributed to current assets in the consolidated
accounts misleading.
CHARGES AND CONTINGENT LIABILITIES
At the date of this report:
(i) no charge on the assets of the company or any corporation in the
group has arisen since the end of the financial year which secures the
liabilities of any other person; and
(ii) no contingent liability of the company or any corporation in the
group has arisen since the end of the financial year.
No contingent or other liability of the company or any corporation in the
group has become enforceable or is likely to become enforceable within the
period of twelve months after the end of the financial year which, in the
opinion of the directors of the company, will or may affect substantially the
ability of the company and of the group to meet its obligations as and when they
fall due.
OTHER CIRCUMSTANCES AFFECTING THE ACCOUNTS
At the date of this report the directors of the company are not aware of
any circumstances not otherwise dealt with in this report or consolidated
accounts which would render any amount stated in the accounts of the company and
the consolidated accounts misleading.
UNUSUAL ITEMS AFTER THE FINANCIAL YEAR
In the opinion of the directors of the company, no item, transaction or
event of a material and unusual nature has arisen in the interval between the
end of the financial year and the date of this report which is likely
-8-
<PAGE> 33
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
REPORT OF THE DIRECTORS (CONTINUED)
to affect substantially the results of the operations of the company or of the
group for the financial year in which this report is made.
AUDITORS
The auditors, Ernst & Young, Certified Public Accountants, have expressed
their willingness to accept re-appointment.
On behalf of the Board of Directors,
Michael E. Marks
Director
Tsui Sung Lam
Director
13 May 1996
Singapore
-9-
<PAGE> 34
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
STATEMENT BY DIRECTORS PURSUANT TO SECTION 201(15)
We, Michael E. Marks and Tsui Sung Lam, being two of the directors of
Flextronics International Ltd., do hereby state that, in the opinion of the
directors:
(i) the balance sheets, profit and loss accounts and consolidated
statement of cash flows together with the notes thereto, set out on pages
12 to 31 are drawn up so as to give a true and fair view of the state of
affairs of the company and of the group as at 31 March 1996, the results of
the company and of the group and cash flows of the group for the year ended
on that date; and
(ii) at the date of this statement there are reasonable grounds to
believe that the company will be able to pay its debts as and when they
fall due.
On behalf of the Board of Directors,
Michael E. Marks
Director
Tsui Sung Lam
Director
13 May 1996
Singapore
-10-
<PAGE> 35
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
REPORT OF THE AUDITORS TO THE MEMBERS OF FLEXTRONICS INTERNATIONAL LTD.
We have audited the accounts set out on pages 12 to 31 in accordance with
the Statements of Auditing Guideline and Statements of Auditing Practice and,
accordingly, included such tests of the accounting records and such other
auditing procedures as we considered appropriate in the circumstances.
In our opinion:
(a) the accounts are properly drawn up in accordance with the
provisions of the Companies Act, Cap. 50 and Statements of Accounting
Standard and so as to give a true and fair view of:
(i) the state of affairs of the group and of the company as at 31
March 1996, the results of the group and of the company and the cash
flows of the group for the year ended on that date; and
(ii) the other matters required by Section 201 of the Act to be
dealt with in the accounts and consolidated accounts;
(b) the accounting and other records and the registers required by the
Act to be kept by the company and by the subsidiary incorporated in
Singapore, of which we are the auditors, have been properly kept in
accordance with the provisions of the Act.
We have considered the accounts and auditors' reports of all the
subsidiaries for which we have not acted as auditors and the accounts of
subsidiaries of which an audit is not required by law in their countries of
incorporation being accounts that have been included in the consolidated
accounts. The subsidiary companies audited by our associated firms and those
audited by other firms are indicated in note 3 to the accounts.
We are satisfied that the accounts of the subsidiaries that are
consolidated with the accounts of the holding company are in form and content
appropriate and proper for the purposes of the preparation of the consolidated
accounts, and we have received satisfactory information and explanations as
required by us for those purposes.
The auditors' reports on the accounts of the subsidiaries were not subject
to any qualification, and in respect of the subsidiary incorporated in
Singapore, did not include any comment made under sub-section (3) of Section 207
of the Act.
ERNST & YOUNG
Certified Public Accountants
13 May 1996
Singapore
-11-
<PAGE> 36
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
PROFIT AND LOSS ACCOUNTS FOR THE FINANCIAL YEAR ENDED 31 MARCH 1996
<TABLE>
<CAPTION>
GROUP COMPANY
----------------------- -----------------------
1996 1995 1996 1995
NOTE --------- --------- --------- ---------
---- $'000 $'000 $'000 $'000
<S> <C> <C> <C> <C> <C>
SALES AND OTHER OPERATING REVENUE.... 4 627,685 353,705 7,324 --
======= ======= ======= ======
OPERATING (LOSS)/PROFIT.............. 5 (15,824) 14,554 (66,467) (1,238)
-------
------- ------- -------
Interest on hire purchase
contracts.......................... (1,936) (1,255) -- --
Interest income...................... 562 422 38 13
Term loan interest................... (1,255) (196) -- --
Subordinated loan interest........... (32) (33) -- --
Interest on bank overdraft........... (33) (3) -- --
Other interest expenses.............. (769) (88) (280) --
Merger expenses...................... -- (1,216) -- (811)
Losses from former associated
company............................ -- (1,086) -- --
Redundancy costs..................... (409) -- -- --
-------
------- ------- -------
(3,872) (3,455) (242) (798)
------- ------- ------- ------
(LOSS)/PROFIT BEFORE TAXATION........ (19,696) 11,099 (66,709) (2,036)
Taxation............................. 6 (5,307) (2,137) (14) (4)
------- ------- ------- ------
(LOSS)/PROFIT AFTER TAXATION......... (25,003) 8,962 (66,723) (2,040)
Extraordinary item................... 7 -- -- -- 1,897
------- ------- ------- ------
(LOSS)/PROFIT FOR THE YEAR
TRANSFERRED TO ACCUMULATED
LOSSES............................. (25,003) 8,962 (66,723) (143)
======= ======= ======= ======
STATEMENT OF ACCUMULATED LOSSES
BALANCE AT BEGINNING OF FINANCIAL
YEAR............................... (15,926) (15,886) (3,115) 6,008
Adjustment loss of n CHIP, Inc. for
the three months ended 31 March
1994............................... 35 -- (953) -- --
Exchange difference arising on
translation........................ (1,949) (8,049) (699) (8,980)
Retained (loss)/profit for the
year............................... (25,003) 8,962 (66,723) (143)
------- ------- ------- ------
BALANCE AT END OF FINANCIAL YEAR..... (42,878) (15,926) (70,537) (3,115)
======= ======= ======= ======
(LOSS)/EARNINGS PER SHARE............ 8
basic (in cents)................... (199.5) 78.6
fully diluted (in cents)........... -- 74.0
</TABLE>
The accompanying notes to the accounts form an integral part of the accounts.
-12-
<PAGE> 37
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
BALANCE SHEETS AS AT 31 MARCH 1996
<TABLE>
<CAPTION>
GROUP COMPANY
--------------------- ---------------------
1996 1995 1996 1995
NOTE -------- -------- -------- --------
---- $'000 $'000 $'000 $'000
<S> <C> <C> <C> <C> <C>
FIXED ASSETS................................... 9 85,543 37,857 -- --
INTEREST IN SUBSIDIARY COMPANIES............... 10 -- -- 98,576 50,894
GOODWILL ARISING ON CONSOLIDATION.............. 11 13,418 8,443 -- --
INTANGIBLE ASSETS.............................. 12 1,134 972 -- --
DEFERRED EXPENDITURE........................... 13 489 320 -- --
OTHER RECEIVABLE............................... 14 2,919 -- -- --
------- ------- ------- ------
CURRENT ASSETS:
------- ------- ------- ------
Cash and bank balances......................... 9,164 6,746 508 507
Trade accounts receivable...................... 15 109,360 62,835 -- --
Other accounts receivable...................... 16 5,680 7,166 -- 5
Inventories.................................... 17 73,691 42,940 -- --
Amounts due from subsidiary companies.......... 18 -- -- 39,664 32,811
------- ------- ------- ------
197,895 119,687 40,172 33,323
------- ------- ------- ------
CURRENT LIABILITIES:
------- ------- ------- ------
Amounts due to bankers......................... 19 20,131 2,840 -- --
Term loan -- current portion................... 19 1,503 12 -- --
Trade accounts payable and accruals............ 90,475 54,655 -- --
Other accounts payable......................... 20 19,767 6,500 5,445 501
Hire purchase creditors........................ 21 9,431 5,554 -- --
Amounts due to subsidiary companies............ 18 -- -- -- 361
Taxation....................................... 3,886 2,171 11 7
Notes payable.................................. 23 14,000 -- 14,000 --
------- ------- ------- ------
159,193 71,732 19,456 869
------- ------- ------- ------
NET CURRENT ASSETS............................. 38,702 47,955 20,716 32,454
TERM LOAN...................................... 19 3,576 -- -- --
HIRE PURCHASE CREDITORS........................ 21 14,168 8,812 -- --
DEFERRED TAXATION.............................. 28 1,394 980 -- --
NOTES PAYABLE TO FORMER SHAREHOLDERS........... 22 960 972 -- --
NOTES AND OTHER PAYABLE........................ 23 21,000 -- 21,000 --
------- ------- ------- ------
101,107 84,783 98,292 83,348
======= ======= ======= ======
CAPITAL AND RESERVES
Share capital.................................. 24 132 116 132 116
Share premium.................................. 25 142,919 100,338 117,033 74,452
Capital reserve................................ 26 255 255 255 255
Revaluation reserve............................ 27 -- -- 51,409 11,640
Accumulated losses............................. (42,878 ) (15,926 ) (70,537 ) (3,115)
------- ------- ------- ------
100,428 84,783 98,292 83,348
Minority interest.............................. 679 -- -- --
------- ------- ------- ------
101,107 84,783 98,292 83,348
======= ======= ======= ======
</TABLE>
The accompanying notes to the accounts form an integral part of the accounts.
-13-
<PAGE> 38
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 1996
<TABLE>
<CAPTION>
1996 1995
------- -------
$'000 $'000
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Operating (loss)/income before taxation.............................. (19,696) 11,099
Adjustments for:
Loss of nCHIP, Inc. for the three months ended 31 March 1995....... -- (953)
Depreciation of fixed assets....................................... 13,372 6,490
(Gain)/loss on sale of fixed assets................................ (195) 29
Loss on sale of investment......................................... 374 --
Loss from associated company....................................... -- 1,086
Allowance for stock obsolescence................................... 796 61
Amortisation of goodwill arising on consolidation.................. 1,217 912
Amortisation of intangible assets.................................. 572 397
Amortisation of organisation expenses.............................. 186 86
In process research & development written off...................... 44,188 --
Currency re-alignment.............................................. 1,188 (2,515)
Interest expense................................................... 4,025 1,575
Interest income.................................................... (562) (422)
------ ------
OPERATING INCOME BEFORE REINVESTMENT IN WORKING CAPITAL.............. 45,465 17,845
CHANGES IN OPERATING ASSETS AND LIABILITIES (NET OF EFFECTS OF
ACQUISITION)
Increase in accounts receivable...................................... (37,105) (14,640)
Decrease/(increase) in other accounts receivable..................... 3,450 (2,456)
Increase in inventories.............................................. (24,609) (740)
Increase/(decrease) in accounts payable.............................. 18,761 (1,389)
Increase/(decrease) in other accounts payable........................ 5,101 (2,087)
Decrease in deferred rental liability................................ -- (230)
------ ------
CASH GENERATED FROM/(USED FOR) OPERATIONS............................ 11,063 (3,697)
Interest received.................................................... 562 422
Interest paid........................................................ (4,025) (1,575)
Income taxes paid.................................................... (3,668) (443)
------ ------
NET CASH PROVIDED BY/(USED IN) OPERATING ACTIVITIES.................. 3,932 (5,293)
====== ======
</TABLE>
The accompanying notes to the accounts form an integral part of the accounts.
-14-
<PAGE> 39
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 1996 (CONTINUED)
<TABLE>
<CAPTION>
GROUP
-------------------
1996 1995
------- -------
$'000 $'000
<S> <C> <C>
CASH FLOW FROM INVESTING ACTIVITIES:
Purchase of business, net of cash acquired............................... (21,213) (4,379)
Purchase of fixed assets................................................. (39,504) (21,105)
Loan to associated company............................................... -- (1,500)
Proceeds from sale of fixed assets....................................... 2,120 139
Redemption of preference shares in joint venture......................... -- 2,848
Intangible assets obtained............................................... -- (91)
Deferred expenditure due to subsidiary incorporated...................... (61) (156)
------ ------
NET CASH USED IN INVESTING ACTIVITIES.................................... (58,658) (24,244)
====== ======
CASH FLOW FROM FINANCING ACTIVITIES:
Proceeds from issuance of share capital.................................. 32,174 8,705
Proceeds from/ (repayment) of bank borrowings............................ 14,396 (14,444)
Repayment of term loan................................................... 144 (47)
Finance lease obtained................................................... 8,963 4,798
Repayment of loan to related party....................................... 2,037 --
(Repayment) of / proceeds from note payable.............................. (435) (4,146)
------ ------
NET CASH PROVIDED BY/(USED IN) FINANCING ACTIVITIES...................... 57,279 (5,134)
====== ======
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS..................... 2,553 (34,671)
Cash and cash equivalents at beginning of financial year................. 6,746 45,848
Effect of exchange rate changes.......................................... (135) (4,431)
------ ------
Cash and cash equivalents at end of financial year....................... 9,164 6,746
====== ======
</TABLE>
The accompanying notes to the accounts form an integral part of the accounts.
-15-
<PAGE> 40
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE FINANCIAL YEAR ENDED 31 MARCH 1996 (CONTINUED)
The acquisition of Assembly & Automation (Electronics) Limited ('A & A')
and Astron Group Limited ('Astron') have been shown in the statement as a single
item. The effect on the individual assets and liabilities is set out below:
<TABLE>
<CAPTION>
A & A ASTRON TOTAL
------- ------- -------
$'000 $'000 $'000
<S> <C> <C> <C>
Fixed assets.................................................. 5,131 21,263 26,394
Intangible assets............................................. 332 400 732
Deferred assets............................................... -- 298 298
Long term receivables......................................... -- 4,956 4,956
Research and development...................................... -- 44,188 44,188
Cash and bank................................................. -- 2,950 2,950
Inventories................................................... 3,280 3,737 7,017
Debtors....................................................... 7,152 4,606 11,758
Current liabilities........................................... (14,190) (12,528) (26,718)
Taxation and deferred taxation................................ -- (486) (486)
Long term liabilities......................................... (2,218) (423) (2,641)
Minority interest............................................. -- (679) (679)
------ ------ ------
NET (LIABILITIES)/ASSETS ACQUIRED............................. (513) 68,282 67,769
Goodwill arising on acquisition............................... 6,192 -- 6,192
------ ------ ------
5,679 68,282 73,961
Less : Non cash consideration................................. (1,313) (48,485) (49,798)
------ ------ ------
Cash paid..................................................... 4,366 19,797 24,163
Less : Cash of Astron......................................... -- (2,950) (2,950)
------ ------ ------
CASH FLOW ON ACQUISITION NET OF CASH ACQUIRED................. 4,366 16,847 21,213
====== ====== ======
</TABLE>
The accompanying notes to the accounts form an integral part of the accounts.
-16-
<PAGE> 41
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
NOTES TO THE ACCOUNTS
1. SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF ACCOUNTING
The accounts of the company and the group which are maintained in United
States dollars, are prepared under the historical cost convention except in
respect of investment in subsidiaries which is stated at valuation based on the
respective subsidiaries' net assets at the balance sheet date (see paragraph (j)
below). The financial statements have been prepared by translating the United
States dollars accounts to Singapore dollars at the exchange rate ruling at the
financial year end except for share capital and non-monetary items which have
been translated at historical rates. Exchange differences on currency
translation are taken to reserves.
The accounts are prepared in accordance with applicable accounting
standards.
(b) BASIS OF CONSOLIDATION
The consolidated accounts incorporate the accounts of the company and all
its subsidiary companies. The accounting year of the company and all its
subsidiary companies ends on 31 March.
The acquisition of nCHIP, Inc. ("nCHIP") in 1995 financial year was
accounted for as a pooling of interest and therefore, all prior period financial
statements presented have been restated as if the acquisition took place at the
beginning of such periods (see note 35).
On acquisition of a subsidiary accounted for using purchase method, any
excess of the purchase consideration over the fair value of the assets acquired
at the date of acquisition is included in goodwill on consolidation and
amortised on a straight line basis (see paragraph (f) below). Assets,
liabilities and results of overseas subsidiaries are translated into Singapore
dollars on the basis outlined in paragraph (d) below.
(c) DEPRECIATION
Depreciation is calculated on the straight line method to write off the
cost of fixed assets over their estimated useful lives as follows :
<TABLE>
<S> <C>
Freehold building............................................. 22 years
Leasehold improvements........................................ 10 years
Plant and equipment........................................... 2 to 10 years
</TABLE>
(d) FOREIGN CURRENCIES
Foreign currency assets and liabilities are converted to United States
dollars at rates approximately those ruling at balance sheet date. Foreign
currency transactions are converted to United States dollars at the rates ruling
at the date of the transactions. All exchange differences on conversion of
foreign currencies are dealt with in the profit and loss account.
For inclusion in the consolidated accounts, the financial statements of the
company and the subsidiaries are translated into Singapore dollars at year end
exchange rates.
(e) DEFERRED EXPENDITURE
Deferred expenditure comprises preliminary expenses and is written off to
profit and loss account on a straight line basis over a five-year period
commencing from the date of commercial operations.
(f) REVENUE RECOGNITION
Revenues from the sale of manufactures products and services rendered are
recognised upon passage of title to the customer which generally coincides with
their delivery and passage.
-17-
<PAGE> 42
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
NOTES TO THE ACCOUNTS (CONTINUED)
Revenues from contract manufacturing are recognised on the percentage of
completion method. Any losses are provided for as they become known.
(g) GOODWILL ARISING ON CONSOLIDATION
Goodwill represents the excess of the purchase price of acquired companies
over the fair value of the net assets acquired. Goodwill is amortised on a
straight line basis over the estimated life of the benefits received which
ranges from ten to twenty-five years. On an annual basis, the company evaluates
recorded goodwill for potential impairment against the current and estimated
undiscounted future operating income before goodwill amortisation of the
businesses to which the goodwill relates.
(h) INTANGIBLE ASSETS
Intangible assets comprise technical agreements, patents, trademarks and
identifiable intangible assets in a subsidiary's assembled work force, its
favourable lease and its customer list.
Technical agreements are being amortised on a straight line basis over the
periods not exceeding five years. Patents and trademarks are being amortised on
a straight line basis over periods not exceeding seventeen years. The
identifiable intangible assets in the subsidiary's assembled work force, its
favourable lease and its customer list are amortised on a straight line basis
over the estimated life of the benefits received of three years.
(i) INVENTORIES
Inventories are stated at the lower of cost and net realisable value. Cost
comprises direct materials on a first-in-first-out basis and in the case of
finished products, includes direct labour and attributable production overheads
based on normal levels of activity. Net realisable value represents the
estimated selling price less anticipated cost of disposal and after making
allowance for damaged, obsolete and slow-moving items.
(j) LEASED ASSETS
Where assets are financed by lease agreements that give rights
approximating to ownership (finance leases), the assets are capitalised under
fixed assets as if they had been purchased during the periods of the leases and
the corresponding lease commitments are included under liabilities. Lease
payments are treated as consisting of capital and interest elements and the
interest is charged to profit and loss account. Depreciation on the relevant
assets is charged to profit and loss account on the basis outlined in note (c)
above.
(k) SUBSIDIARY COMPANIES
The investments in subsidiary companies are revalued by the directors at
balance sheet date at amounts equal to the attributable net assets of the
subsidiaries concerned based on their audited accounts.
An increase in carrying amount arising from the revaluation is credited to
Revaluation Reserve. To the extent that a decrease in carrying amount offsets a
previous increase that has been credited to Revaluation Reserve and not
subsequently reversed or utilised, it is charged against that Revaluation
Reserve. In all other cases, a decrease in carrying amount is charged to income.
An increase on revaluation directly related to a previous decrease in carrying
amount that was charged to income is credited to income to the extent that it
offsets the previously recorded decrease.
Where a subsidiary is acquired at the end of a financial year, there will
be no revaluation of the subsidiary in that year of acquisition.
-18-
<PAGE> 43
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
NOTES TO THE ACCOUNTS (CONTINUED)
(l) FIXED ASSETS
Fixed assets are stated at cost less accumulated depreciation. The cost of
an asset comprises its purchase price and any directly attributable costs of
bringing the asset to working condition for its intended use. Expenditure for
additions, improvements and renewals are capitalised and expenditure for
maintenance and repairs are charged to the profit and loss account. When assets
are sold or retired, any gain or loss resulting from their disposal is included
in the profit and loss account.
(m) DEFERRED TAXATION
Deferred taxation is accounted for under the liability method whereby the
tax charge for the financial year is based on the disclosed book profit after
adjusting for all permanent differences. The amount of taxation deferred on
account of all timing differences is reflected in the deferred taxation account.
Deferred tax benefits are not recognised unless there is reasonable expectation
of their realisation.
2. GENERAL
The principal activity of the company, which is incorporated in Singapore,
is investment holding. The principal activities of the subsidiary companies are
as stated in Note 3.
There have been no significant changes in the nature of these activities
during the financial year.
3. GROUP COMPANIES
The subsidiary companies at 31 March 1996 are as follows:
<TABLE>
<CAPTION>
PERCENTAGE OF ORIGINAL
EQUITY HELD COST OF
COUNTRY OF BY THE GROUP INVESTMENT
INCORPORATION ------------- -------------------
AND PLACE 1996 1995 1996 1995
NAME OF COMPANY PRINCIPAL ACTIVITIES OF BUSINESS % % ------- -------
---------------------- --------------------------------- ------------- ---- ---- US$'000 US$'000
<C> <S> <C> <C> <C> <C> <C> <C>
SUBSIDIARY COMPANIES
Flextronics Singapore Design, assembly and manufacture Singapore 100 100 3,977 3,977
Pte Ltd of computer industrial grade
printed circuit board
sub-assemblies, systems assembly
and testing
* Flextronics Designs, assembly and manufacture United States 100 100 4,017 4,017
International (USA), of computer industrial grade of America
Inc. (Formerly known printer circuit board
as nCHIP, Inc) sub-assemblies, and products
requiring advance electronics
packaging; marketing and
procurement representative
* Flextronics Manufacture of components for Hong Kong 100 100 -- --
Manufacturing (HK) Ltd computer equipment
* Astron Technologies Sales and marketing business Mauritius 100 -- -- --
Ltd
* Hiromichi Limited Dormant British 100 -- 2,107 --
Virgin
Islands
* Flextronics Contract manufacturer of United 100 -- 4,057 --
International (UK) Ltd electronics and telecommunication Kingdom
(Formerly known as equipment providing turnkey
Assembly and manufacturing services to its
Automation customers
(Electronics) Limited)
</TABLE>
On 29 December 1995, the US Subsidiary Companies were merged to form an
enlarged company, Flextronics International (USA), Inc.
-19-
<PAGE> 44
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
NOTES TO THE ACCOUNTS (CONTINUED)
<TABLE>
<CAPTION>
PERCENTAGE OF ORIGINAL
EQUITY HELD COST OF
COUNTRY OF BY THE GROUP INVESTMENT
INCORPORATION ------------- -------------------
NAME OF PRINCIPAL AND PLACE 1996 1995 1996 1995
COMPANY ACTIVITIES OF BUSINESS % % ------- -------
---------------------- --------------------------------- ------------- ---- ---- US$'000 US$'000
<C> <S> <C> <C> <C> <C> <C> <C>
Held by Flextronics Singapore Pte Ltd
** Flextronics Computer Design, assembly and manufacture People's 100 100 # #
(Shekou) Limited of computer industrial grade Republic of
printed circuit board China
sub-assemblies, systems assembly
and testing
** Flextronics Industrial Design, assembly and manufacture People's 100 100 # #
(Shenzhen) Ltd of computer industrial grade Republic of
printed circuit board China
sub-assemblies, systems assembly
and testing
* Flextronics Malaysia Design, assembly and manufacture Malaysia 100 100 # #
Sdn Bhd of computer industrial grade
printed circuit board
sub-assemblies, systems-assembly
and testing
* Flex International Sales and marketing of computer Malaysia 100 100 # #
Marketing (L) Ltd industrial graded PCB assemblies
and systems assembly
* Flextronics Purchasing Trade of components of computer Hong Kong 100 100 # #
(HK) Ltd equipment
* Flextronics Sales (HK) Investment holding Hong Kong 100 100 # #
Limited
* Flextronics Marketing Investment holding Hong Kong 100 100 # #
(HK) Limited
Held by Flextronics Manufacturing (HK) Ltd
* Astron Group Limited Manufacturer of miniature, gold- Hong Kong 100 -- # #
finished printed circuit boards
Held by Astron Group Ltd
* Astron Group (China) Manufacturer of miniature, gold- China 96.25 -- # #
Ltd finished printed circuit boards
Held by Flextronics International (USA) Inc.
** Flex Asia (UK) Ltd Sales and marketing of computer United 100 100 # #
(Formerly known as industrial graded PCB assemblies Kingdom
Flextronics and systems assembly.
International (UK)
Ltd)
</TABLE>
- ---------------
* Audited by associated firms of Ernst & Young
** Audited by other firms
# The shareholdings of these companies are held by subsidiaries of Flextronics
International Ltd.
4. SALES AND OTHER OPERATING REVENUE
Sales and other operating revenue of the group represent invoiced trading
sales and services to customers. Transactions within the group have been
excluded.
Sales of the company represent dividend income from subsidiaries.
-20-
<PAGE> 45
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
NOTES TO THE ACCOUNTS (CONTINUED)
5. OPERATING (LOSS)/PROFIT
Operating (loss)/profit is stated after charging/(crediting) the following:
<TABLE>
<CAPTION>
GROUP COMPANY
------------------- ---------------------
1996 1995 1996 1995
------- ------- ------- -------
US$'000 US$'000 US$'000 US$'000
<S> <C> <C> <C> <C>
Directors' remuneration
-- directors of the company...................... 1,182 786 -- --
-- other directors of subsidiaries................ 718 129 -- --
Auditors' remuneration --
-- auditors of the company........................ 109 138 84 73
-- other auditors of subsidiaries................. 264 155 -- --
Depreciation of fixed assets........................ 13,372 6,490 -- --
(Gain)/loss on sale of fixed assets................. (195) 29 -- --
Loss on sale of investment.......................... 374 -- -- --
Amortisation of deferred expenditure................ 186 86 -- --
Amortisation of goodwill on consolidation........... 1,217 912 -- --
Amortisation of intangible assets................... 572 397 -- --
Allowance for provision for stock obsolescence...... 796 61 -- --
Write off of in process research & development...... 44,188 -- -- --
Exchange (gain)/loss................................ (1,213) 451 -- --
------ ----- ----- -----
</TABLE>
6. TAXATION
Profit for taxation in respect of profit for the financial year:
<TABLE>
<S> <C> <C> <C> <C>
Current taxation -- Singapore....................... 1,831 460 14 4
-- Foreign........................ 3,172 1,284 -- --
Deferred taxation (note 28)......................... 118 337 -- --
Underprovision in respect of previous financial
years............................................. 186 56 -- --
------ ----- ----- -----
5,307 2,137 14 4
====== ===== ===== =====
</TABLE>
The taxation charge for the Group differs from the amount determined by
applying the Singapore income tax rate of 26% to the pre-tax profits because of
non-deductible expenses, difference in tax rates applicable to overseas
subsidiaries and utilisation of investment allowance.
7. EXTRAORDINARY ITEM
Write back of prior years' deficit arising from
<TABLE>
<S> <C> <C> <C> <C>
the revaluation of investment in subsidiary
companies......................................... -- -- -- 1,897
===== ===== ===== =====
</TABLE>
8. (LOSS)/EARNINGS PER SHARE
Basic (loss)/earnings per share are calculated by dividing the net
(loss)/profit after tax of $(25,003,000) (1995: $8,962,000) with the weighted
average of 12,536,000 Ordinary Shares (1995: 11,404,000 Ordinary Shares) in
issue during the financial year.
No fully diluted loss per share is calculated this year because of the net
loss position. In 1995 the fully diluted earnings per share is calculated after
adjusting for those shares not yet exercised under the share options to purchase
Ordinary Shares.
-21-
<PAGE> 46
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
NOTES TO THE ACCOUNTS (CONTINUED)
9. FIXED ASSETS
<TABLE>
<CAPTION>
GROUP
--------------------------------------------------
FREEHOLD LEASEHOLD PLANT AND
BUILDING IMPROVEMENTS EQUIPMENT TOTAL
-------- ------------ --------- ------
$'000 $'000 $'000 $'000
<S> <C> <C> <C> <C>
Cost
At beginning of financial year................. 107 6,617 67,005 73,729
Reclassification............................... 295 (295) -- --
Currency realignment........................... (144) (874) (7,786) (8,804)
Due to acquisition of subsidiaries............. 3,018 12,443 25,164 40,625
Additions...................................... 4,755 4,926 29,823 39,504
Disposals...................................... -- (1,130) (5,327) (6,457)
----- ------ ------ ------
At end of financial year....................... 8,031 21,687 108,879 138,597
----- ------ ------ ------
Accumulated depreciation
At beginning of financial year................. 32 2,629 33,211 35,872
Reclassification............................... 22 (22) -- --
Currency realignment........................... (13) (568) (5,308) (5,889)
Due to acquisition of subsidiaries............. 263 57 13,911 14,231
Charge for the financial year.................. 145 928 12,299 13,372
Disposals...................................... -- (664) (3,868) (4,532)
----- ------ ------ ------
At end of financial year....................... 449 2,360 50,245 53,054
===== ====== ====== ======
Charge for 1995................................ 5 312 6,173 6,490
===== ====== ====== ======
Net book value At 31 March 1996.................. 7,582 19,327 58,634 85,543
===== ====== ====== ======
At 31 March 1995............................... 75 3,988 33,794 37,857
===== ====== ====== ======
</TABLE>
Plant and equipment includes items costing $39,742,226 (1995 : $23,269,159)
were purchased under hire purchase contracts (note 21).
10. INTEREST IN SUBSIDIARY COMPANIES
<TABLE>
<CAPTION>
COMPANY
------------------
1995 1996
------- ------
$'000 $'000
<S> <C> <C>
Unquoted shares, at directors' valuation:
At beginning of financial year.......................................... 50,894 42,069
Currency realignment.................................................... (717) (4,733)
Acquisition of subsidiary............................................... 76,911 21
Disposal of subsidiary.................................................. (68,281) --
Revaluation............................................................. 39,769 13,537
------ ------
At end of financial year................................................ 98,576 50,894
====== ======
</TABLE>
The company's investment in subsidiary companies is stated at the
attributable share of their combined net asset value. The revaluation surplus
for the year is $39,769,000 (1995: $13,537,000). In 1995 financial year,
$1,897,000 was taken to the profit and loss account as an extraordinary item as
the surplus was related to previous decreases in carrying amount that was
charged to the profit and loss account.
The subsidiaries acquired during the financial year have been stated at the
cost of investment less any provision for diminution in net asset value.
It is the directors' opinion that any revaluation of these subsidiaries is
not necessary in the current year.
The company's subsidiaries operating in the People's Republic of China are
required to obtain approval from the relevant authorities when making foreign
currency payments.
-22-
<PAGE> 47
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
NOTES TO THE ACCOUNTS (CONTINUED)
11. GOODWILL ARISING ON CONSOLIDATION
<TABLE>
<CAPTION>
GROUP
-----------------
1996 1995
------ ------
$'000 $'000
<S> <C> <C>
Cost
At beginning of financial year........................... 12,058 12,058
Additions................................................ 6,192 --
------ ------
At end of financial year................................. 18,250 12,058
------ ------
Amortisation
At beginning of financial year........................... 3,615 2,703
Amortisation for the financial year...................... 1,217 912
------ ------
At end of financial year................................. 4,832 3,615
------ ------
Net book value at end of financial year.................... 13,418 8,443
====== ======
</TABLE>
12. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
GROUP
-----------------
1996 1995
------ ------
$'000 $'000
<S> <C> <C>
Cost
At beginning of financial year........................... 1,458 1,391
Currency realignment..................................... (4) (24)
Additions................................................ 737 91
------ ------
At end of financial year................................. 2,191 1,458
------ ------
Amortisation
At beginning of financial year........................... 486 97
Currency realignment..................................... (1) (8)
Amortisation for the financial year...................... 572 397
------ ------
At end of financial year................................. 1,057 486
------ ------
Net book value at end of financial year.................. 1,134 972
====== ======
</TABLE>
13. DEFERRED EXPENDITURE
<TABLE>
<S> <C> <C>
Cost
At beginning of financial year............................ 595 509
Currency realignment...................................... (8) (70)
Additions................................................. 359 156
Disposals................................................. (11) --
---- ----
At end of financial year.................................. 935 595
---- ----
Amortisation
At beginning of financial year............................ 275 219
Currency realignment...................................... (4) (30)
Charge for the year....................................... 186 86
Disposals................................................. (11) --
---- ----
At end of financial year.................................. 446 275
---- ----
Net book value at end of financial year..................... 489 320
==== ====
</TABLE>
-23-
<PAGE> 48
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
NOTES TO THE ACCOUNTS (CONTINUED)
14. OTHER RECEIVABLE
<TABLE>
<CAPTION>
GROUP
-----------------
1996 1995
----- -----
$'000 $'000
<S> <C> <C>
Loan to related party (Note 33)............................ 2,919 --
===== =====
</TABLE>
The loan is secured by a corporate guarantee, bears interest at 7.15% per
annum and is repayable by 4 February 1999.
15. TRADE ACCOUNTS RECEIVABLE
Trade accounts receivable of the group are stated after provision for
doubtful debts of $5,006,000 (1995: $2,499,000).
<TABLE>
<CAPTION>
GROUP
-----------------
1996 1995
----- -----
$'000 $'000
<S> <C> <C>
Provision for doubtful debts is analysed as:
Balance at beginning of the financial year............... 2,499 798
Currency realignment..................................... (35) (89)
Provision during the financial year...................... 2,772 1,840
Due to acquisition of subsidiaries....................... 197 71
Amounts written off...................................... (427) (121)
----- -----
Balance at end of the financial year..................... 5,006 2,499
===== =====
</TABLE>
16. OTHER ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
GROUP COMPANY
--------------- ---------------
1996 1995 1996 1995
----- ----- ----- -----
$'000 $'000 $'000 $'000
<S> <C> <C> <C> <C>
Prepayments............................... 2,245 1,997 -- 5
Deposits.................................. 2,100 4,418 -- --
Sundry debtors............................ 1,335 751 -- --
----- ----- ----- -----
5,680 7,166 -- 5
===== ===== ===== =====
</TABLE>
17. INVENTORIES
<TABLE>
<CAPTION>
GROUP
-------------------
1996 1995
------ ------
$'000 $'000
<S> <C> <C>
Raw materials............................................ 59,083 30,860
Work in progress......................................... 19,668 14,561
Finished goods........................................... 1,346 182
------ ------
80,097 45,603
Deduct: Provision for obsolescence....................... (6,406) (2,663)
------ ------
73,691 42,940
====== ======
</TABLE>
-24-
<PAGE> 49
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
NOTES TO THE ACCOUNTS (CONTINUED)
18. AMOUNTS DUE FROM/TO SUBSIDIARY COMPANIES
The amounts due from/to subsidiary companies are unsecured, interest free
and have no fixed terms of repayment.
19. BANK BORROWINGS
<TABLE>
<CAPTION>
GROUP
------------------
1996 1995
------ -----
$'000 $'000
<S> <C> <C>
Term loan (secured)
Total outstanding....................................... 5,079 12
Deduct current portion.................................. (1,503) (12)
------ -----
Long term portion......................................... 3,576 --
====== =====
Amounts due to bankers (secured)
Short-term advances..................................... 20,131 2,840
------ -----
20,131 2,840
====== =====
</TABLE>
The group's banking facilities are secured by:
(a) a negative pledge over a subsidiary's fixed and floating assets;
and
(b) guarantee from holding company and subsidiary companies.
The weighted average interest rate on short-term advances as at year-end is
6.41% (1995: 6.438%) per annum.
20. OTHER ACCOUNTS PAYABLE
<TABLE>
<CAPTION>
GROUP COMPANY
---------------- ---------------
1996 1995 1996 1995
------ ----- ----- -----
$'000 $'000 $'000 $'000
<S> <C> <C> <C> <C>
Miscellaneous creditors..................... 6,475 1,427 -- --
Accruals.................................... 8,917 5,073 1,070 501
Purchase obligation earnout................. 4,375 -- 4,375 --
------ ----- ----- ---
19,767 6,500 5,445 501
====== ===== ===== ===
</TABLE>
The purchase obligation earnout, payable to former shareholders of a
subsidiary, is contingent upon that subsidiary meeting certain pre-tax profit
for the calendar year 1996.
-25-
<PAGE> 50
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
NOTES TO THE ACCOUNTS (CONTINUED)
21. HIRE PURCHASE CREDITORS
At balance sheet date, future minimum instalment payments under hire
purchase contracts are as follows:
<TABLE>
<CAPTION>
GROUP
-----------------
1996 1995
------ ------
$'000 $'000
<S> <C> <C>
1996....................................................... -- 6,905
1997....................................................... 11,144 5,762
1998....................................................... 8,382 3,181
1999....................................................... 4,775 951
2000....................................................... 2,061 19
2001....................................................... 705 --
------ ------
Total instalment payments.................................. 27,067 16,818
Amount representing interest............................... (3,468) (2,452)
------ ------
Present value of net instalment payments................... 23,599 14,366
Deduct: Current portion.................................... (9,431) (5,554)
------ ------
Long-term portion of hire purchase contracts............... 14,168 8,812
====== ======
</TABLE>
22. NOTES PAYABLE TO FORMER SHAREHOLDERS
This relates to note payable to former shareholders of nCHIP, Inc. The
notes are interest bearing at 5.7% per annum and are secured upon some licence
agreements. Repayments is schedule as follows:
<TABLE>
<CAPTION>
GROUP
-------------
1996 1995
--- ---
$'000 $'000
<S> <C> <C>
1997.......................................................... 685 688
1998.......................................................... 142 142
1999.......................................................... 142 142
--- ---
Total......................................................... 969 972
Currency realignment.......................................... (9) --
Deduct: current portion....................................... -- --
--- ---
960 972
=== ===
</TABLE>
23. NOTES AND OTHER PAYABLE
<TABLE>
<CAPTION>
GROUP COMPANY
------------------- -------------------
1996 1995 1996 1995
------- ------- ------- -------
$'000 $'000 $'000 $'000
<S> <C> <C> <C> <C>
Notes
Promissory notes bearing
interest at 8% per annum..... 21,000 -- 21,000 --
Deduct: Current portion......... (14,000) -- (14,000) --
------- -------
Long term portion............... 7,000 -- 7,000 --
Other payable
Issuance of Ordinary shares on 30
June 1998....................... 14,000 -- 14,000 --
------- -------
21,000 -- 21,000 --
======= =======
</TABLE>
-26-
<PAGE> 51
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
NOTES TO THE ACCOUNTS (CONTINUED)
24. SHARE CAPITAL
<TABLE>
<CAPTION>
GROUP COMPANY
--------------- ---------------
1996 1995 1996 1995
----- ----- ----- -----
$'000 $'000 $'000 $'000
<S> <C> <C> <C> <C>
Authorised:
100,000,000 Ordinary Shares of $0.01 each................. 1,000 1,000 1,000 1,000
===== ===== ===== =====
Issued and fully paid
Balance as previously stated.............................. 116 92 116 92
Retroactive adjustment on merger of companies (note 1b)... -- 21 -- --
----- ----- ----- -----
Balance brought forward................................... 116 113 116 92
Issued:
1,000,000 Ordinary Shares for cash in respect of secondary
listing................................................ 10 -- 10 --
66,908 shares as part consideration for the purchase of
Assembly and Automation (Electronics) Ltd.............. 1 -- 1 --
238,684 shares as part consideration for the purchase of
Astron Group Ltd....................................... 2 -- 2 --
304,201 (1995: 299,543) shares for cash at a premium of
$1,410,000 (1995: $1,363,000) by virtue of the exercise
of share options....................................... 3 3 3 3
2,104,611 shares on acquisition of 100% interest in nCHIP
Inc. .................................................. -- -- -- 21
----- ----- ----- -----
132 116 132 116
===== ===== ===== =====
</TABLE>
25. SHARE PREMIUM
<TABLE>
<CAPTION>
GROUP COMPANY
------------------- ------------------
1996 1995 1996 1995
------- ------- ------- ------
$'000 $'000 $'000 $'000
<S> <C> <C> <C> <C>
Balance as previously stated....................... 100,338 74,543 74,452 74,543
Retroactive adjustment on merger of companies (note
1b).............................................. -- 17,093 -- --
------- ------- ------- ------
Balance brought forward............................ 100,338 91,636 74,452 74,543
Premium on issue of ordinary shares................ 44,230 1,363 44,230 1,363
Expenses on issuance of shares..................... (1,649) (1,454) (1,649) (1,454)
Issuance of share in merged company (note 1b)...... -- 8,793 -- --
------- ------- ------- ------
At end of financial year........................... 142,919 100,338 117,033 74,452
======= ======= ======= ======
</TABLE>
26. CAPITAL RESERVE
The company, which is listed on NASDAQ in the United States of America,
also prepares accounts which comply with United States generally accepted
accounting principles. These accounts, which are in United States dollars, are
filed with the Securities and Exchange Commission ("SEC") in the United States.
During the year ended 31 March 1994, an amount of $254,885 representing the
difference between the fair market value at the date of grant of certain share
options to selected management employees and the exercise price of the options
was charged to the profit and loss account in compliance with United States
generally accepted accounting principles. No such charge was made in the
preparation of the Singapore statutory accounts as there is no equivalent
accounting standard in Singapore. In order to reduce the revenue reserve to that
reported in the accounts prepared in compliance with United States generally
accepted accounting principles, an amount of $254,885 was transferred from
revenue reserve to capital reserve. Details of the share options granted are
detailed in note 29.
-27-
<PAGE> 52
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
NOTES TO THE ACCOUNTS (CONTINUED)
27. REVALUATION RESERVE
<TABLE>
<CAPTION>
COMPANY
-------------------
1996 1995
------ ------
$'000 $'000
<S> <C> <C>
At beginning of financial year........................... 11,640 --
Revaluation of investment in subsidiary companies (note
10).................................................... 39,769 11,640
------ ------
At end of financial year................................. 51,409 11,640
====== ======
</TABLE>
28. DEFERRED TAXATION
<TABLE>
<CAPTION>
GROUP
-----------------
1996 1995
----- -----
$'000 $'000
<S> <C> <C>
At beginning of financial year.............................. 980 725
Currency realignment........................................ (15) (82)
Provided during the year (note 6)........................... 118 337
Changes in group structure.................................. 311 --
----- ---
At end of financial year.................................... 1,394 980
===== ===
</TABLE>
The deferred taxation arises mainly due to excess of net book value over
tax written down value of fixed assets.
29. SHARE OPTION PLANS
The following table presents the activity for options:
<TABLE>
<CAPTION>
OPTIONS OPTIONS OUTSTANDING
AVAILABLE ----------------------------------
FOR GRANT SHARES PRICE PER SHARE
--------- --------- --------------------
<S> <C> <C> <C>
BALANCE AT MARCH 31, 1994...................... 649,872 729,180 S$0.01 - US$6.67
nCHIP options converted to Flex options........ 345,389 -- US$0.77 - US$4.74
Options granted................................ (508,501) 508,501 US$0.77 - US$16.75
Options exercised.............................. -- (143,699) US$2.92 - US$4.33
Options cancelled.............................. 33,418 (33,418) US$2.92 - US$10.50
-------- ---------
BALANCE AT MARCH 31, 1995...................... 520,178 1,060,564 US$2.92 - US$16.75
Increase in options available for grant........ 600,000 -- S$0.01 - US$35.75
Options granted................................ (641,783) 641,783 US$14.75 - US$35.75
Options exercised.............................. -- (304,201) US$0.77 - US$14.50
Options cancelled.............................. 71,146 (71,146) US$0.77 - US$24.00
-------- ---------
BALANCE AT MARCH 31, 1996...................... 549,541 1,327,000
======== =========
</TABLE>
In January 1995, the Company acquired nCHIP and thereby assumed the
existing nCHIP employee stock options. The outstanding nCHIP employee stock
options were converted into options to purchase approximately 345,389 of the
Company's ordinary shares. As at 31 March 1996, options to subscribe 127,681
Ordinary Shares have been exercised.
The above options will expire between July 1998 and March 2001.
-28-
<PAGE> 53
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
NOTES TO THE ACCOUNTS (CONTINUED)
30. OPERATING LEASE COMMITMENTS
At the balance sheet date, commitments for minimum rental payments under
non-cancellable operating leases with a term of more than one year are as
follows:
<TABLE>
<CAPTION>
GROUP
----------------
1996 1995
------ -----
$'000 $'000
<S> <C> <C>
1996........................................................ -- 2,725
1997........................................................ 3,047 1,098
1998........................................................ 2,494 685
1999........................................................ 2,143 499
2000........................................................ 1,606 357
2001........................................................ 1,111 --
Thereafter.................................................. 2,646 1,164
------ -----
13,047 6,528
====== =====
</TABLE>
31. CONTINGENT LIABILITIES
<TABLE>
<CAPTION>
GROUP COMPANY
----------------- ----------------
1996 1995 1996 1995
------- ----- ----- ------
$'000 $'000 $'000 $'000
<S> <C> <C> <C> <C>
Contingent liabilities not provided for
in the accounts:
Guarantees, unsecured.................. -- -- -- 10,919
======= ===== ===== ======
</TABLE>
32. FUTURE CAPITAL EXPENDITURE
<TABLE>
<CAPTION>
GROUP COMPANY
----------------- ----------------
1996 1995 1996 1995
------- ----- ----- ------
$'000 $'000 $'000 $'000
<S> <C> <C> <C> <C>
Capital expenditure not provided for in
the accounts:
Commitments in respect of contracts
placed.............................. 640,780 5,038 -- --
Other amounts approved by directors but
not committed....................... -- 4,920 -- --
======= ===== ===== ======
</TABLE>
33. RELATED PARTY TRANSACTIONS
(a) The following are the significant transactions entered into by the
group with a company in which a director of a company acquired during the
financial year has a beneficial interest :
<TABLE>
<CAPTION>
GROUP COMPANY
--------------- ---------------
1996 1995 1996 1995
----- ----- ----- -----
$'000 $'000 $'000 $'000
<S> <C> <C> <C> <C>
Loan made (Note 14)........................... 2,919 -- -- --
Interest received on loan made................ (38) -- -- --
Rent paid..................................... 49 -- -- --
===== = = =
</TABLE>
(b) Sales during the financial year amounting to $2,986,161 (1995:
$1,473,938) were made to a company in which a director of the company was the
former President and Chief Executive Officer and remained as a director during
the financial year.
-29-
<PAGE> 54
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
NOTES TO THE ACCOUNTS (CONTINUED)
34. SEGMENT REPORTING
A summary of the group's operations by geographical area is as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
$'000 $'000
<S> <C> <C>
NET SALES:
Singapore:
Unaffiliated customers
Domestic.......................................... 914 5,358
Export............................................ 12,988 10,964
Intercompany......................................... 109,059 100,682
-------- --------
122,961 117,004
-------- --------
USA AND UK:
Unaffiliated customers
Domestic.......................................... 291,145 75,254
Export............................................ 19,274 --
Intercompany......................................... 38 --
-------- --------
310,457 75,254
======== ========
Hong Kong/China and Malaysia:
Unaffiliated customers
Domestic.......................................... 16,573 26,458
Export............................................ 286,790 235,671
Intercompany......................................... 85,092 43,740
-------- --------
388,455 305,869
-------- --------
Eliminations......................................... (194,188) (144,422)
-------- --------
627,685 353,705
======== ========
OPERATING (LOSS)/PROFIT:
Singapore............................................ (38,720) (823)
USA and UK........................................... 4,462 (1,729)
Hong Kong/China and Malaysia......................... 18,434 17,106
-------- --------
(15,824) 14,554
======== ========
IDENTIFIABLE ASSETS:
Singapore............................................ 45,531 35,658
USA and UK........................................... 118,699 37,454
Hong Kong/China and Malaysia......................... 137,168 94,167
-------- --------
301,398 167,279
======== ========
</TABLE>
35. BUSINESS COMBINATION
In January 1995, the Company acquired nCHIP in consideration for the issue
of an aggregate of 2,450,000 Ordinary Shares of $0.01 each, in exchange for all
of the outstanding capital of nCHIP. As part of the 2,450,000 Ordinary Shares to
be issued, outstanding nCHIP employee stock options were converted into options
to subscribe approximately 345,389 Ordinary Shares. The transaction was
accounted for as a pooling
-30-
<PAGE> 55
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARY COMPANIES
NOTES TO THE ACCOUNTS (CONTINUED)
of interests and therefore, all prior period financial statements presented have
been restated as if the acquisition took place at the beginning of such periods.
nCHIP had a calendar year end and, accordingly, the nCHIP profit and loss
accounts for the year ended 31 December 1993 has been combined with the
Company's profit and loss accounts for the financial year ended 31 March 1994.
Effective 1 April 1994, nCHIP's financial year end has been changed from
December to March to conform to the Company's financial year end. Accordingly
nCHIP's operations for the three months ended 31 March 1994 including net sales
of $3,683,549 and net loss of $953,389 have been excluded from consolidated
results and have been reported as an adjustment to the 1 April 1994 accumulated
loss.
36. COMPARATIVE FIGURES
Certain comparative figures have been reclassified to conform with the
current year's presentation.
-31-
<PAGE> 56
FLEXTRONICS INTERNATIONAL LTD.
PROXY
Annual General Meeting of Shareholders
August 15, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned being a member of Flextronics International Ltd. hereby
appoints MICHAEL E. MARKS or failing whom TSUI SUNG LAM, as Proxy of the
undersigned and hereby authorizes the Proxy to represent and to vote, as
designated below, all of the Ordinary Shares of FLEXTRONICS INTERNATIONAL LTD.,
held of record by the undersigned on August 15, 1996 at the Annual General
Meeting of Flextronics International Ltd. to be held August 15, 1996, or at any
adjournment thereof.
/X/ Please mark
votes as in
this example
The Board of Directors recommends a vote FOR Proposals Nos. 1, 2, 3, 4,
5 and 6. This Proxy, when properly executed, will be voted as specified above.
This Proxy will be voted FOR Proposal Nos. 1, 2, 3, 4, 5 and 6 if no
specification is made.
ORDINARY BUSINESS
1. ELECTION OF DIRECTORS
NOMINEES: Robert R.B. Dykes, Michael E. Marks, Andrew W. Russell
/ / FOR / / WITHHELD
/ /
---------------------------------------
FOR all nominees except as noted above.
/ / MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW
2. To re-elect Stephen J.L. Rees to the Board of Directors.
/ / FOR / / AGAINST / / ABSTAIN
3. To receive and adopt the Directors' Report, Auditors' Report and
Audited Accounts for the 1996 fiscal year.
/ / FOR / / AGAINST / / ABSTAIN
4. To reappoint Ernst & Young as independent auditors of the Company
and to authorize the Directors to fix their remuneration.
/ / FOR / / AGAINST / / ABSTAIN
SPECIAL BUSINESS
5. To approve an Ordinary Resolution to increase the number of options
authorized under the 1993 Share Option Plan.
<PAGE> 57
/ / FOR / / AGAINST / / ABSTAIN
6. To approve an Ordinary Resolution relating to Ordinary Share
issuances.
/ / FOR / / AGAINST / / ABSTAIN
7. In their discretion, the Proxies are authorized to vote upon such
other matters as may properly come before the meeting.
Please sign exactly as your name(s) is (are) shown on the share
certificate to which the Proxy applies. When shares are held by joint tenants,
both should sign. If a corporation, please sign in full corporate name by
President or other authorized officer. If a partnership, please sign in
partnership name by authorized person.
DATED:___________________________,1996
______________________________________
Signature
______________________________________
______________________________________
Note:
- ----
1. A member entitled to attend and vote at the meeting is entitled to appoint
a proxy to attend and vote on his or her behalf. A proxy need not also be a
member.
2. Where a member appoints two or more proxies, the appointments shall be
invalid unless he or she specifies the proportion of his or her shareholding
(expressed as a percentage of the whole) to be represented by each proxy.
3. An instrument appointing a proxy must be left at the registered office of
the Company at 36 Robinson Road #18-01 City House, Singapore 068877 or at
The First National Bank of Boston, 150 Royall Street, M/S 45-01-07,
Canton , Massachusetts 02021, United States of America, not less than 48
hours before the time appointed for holding the meeting.
4. Where an instrument appointing a proxy is signed on behalf of the appointor
by an attorney, the letter or power of attorney or a duly certified copy
thereof must (failing previous registration with the Company) be lodged
with the instrument of proxy, failing which the instrument may be treated
as invalid.
<PAGE> 58
[FLEXTRONICS INTERNATIONAL LOGO]
FLEXTRONICS INTERNATIONAL
[GRAPHIC 1]
Annual Report 1996
<PAGE> 59
CORPORATE PROFILE
Flextronics International offers advanced contract manufacturing services of
sophisticated electronics for OEMs in the medical, consumer, computer, and
communications industries. The Company offers a full range of services including
printed circuit board (PCB) and multichip module (MCM) design, materials
procurement and management, advanced packaging fabrication, PCB assembly, final
system build, distribution, and warranty repair. The Company has facilities
located in North America, Europe, and Asia.
TO OUR SHAREHOLDERS:
It is particularly gratifying to report to you after another year of rapid
growth and record profitability. In just three short years, Flextronics
International has grown from three manufacturing operations in Asia and revenues
of $131 million, to a company with a global presence, revenues of $448 million,
and among the highest profitability rates in the contract electronics
manufacturing industry. I would like to review for a moment the strategies that
have generated these results, and then look forward to the new opportunities
available to our Company.
SETTING THE STRATEGY
During the summer of 1993, the management of Flextronics met to consider the
Company's position in the industry and what strategies should be pursued to
enhance that position. At the time, the Company's annual revenue was $100
million, which ranked the Company approximately twentieth by revenue in the
industry worldwide. It was clear to the management that in a rapidly growing
industry, it was important to be in the top five in both revenues and profits.
To achieve that result, the following strategies were established:
- - Leverage the Asian cost base to increase profitability;
- - Add manufacturing operations in Europe and North America;
- - Acquire or develop leading edge manufacturing technology;
- - Expand services to include design through distribution;
- - Broaden the customer base, and the industries served.
ACHIEVING THE OBJECTIVES
During the three years since these strategies were set, the Company grew
rapidly, both internally and through acquisition. In March, 1994, Relevant
Industries was acquired, which provided Flextronics with its first manufacturing
operation in North America, located in San Jose, California. Relevant was a
small, system level assembly supplier which also added this new service to the
Company. Since then, our San Jose business has grown more than ten fold,
encompasses a second building devoted to PCB assembly, and soon a third building
will be built on land acquired recently. An additional PCBA manufacturing
operation was opened in 1995 in Dallas, Texas, thereby providing additional
capacity in North America.
In early 1995, we acquired nCHIP, a company engaged in the design and
production of multichip modules on silicon substrates. nCHIP's capabilities in a
variety of packaging designs has since been expanded to include development of
integrated passive components, leading edge bare die placement techniques, and
research and development (with Dow Chemical) on a new low cost substrate. The
revenue at nCHIP has more than doubled since its acquisition, and it now serves
as the design front end for all of Flextronics' worldwide operations.
In April, 1995, we acquired A&A, a small PCBA facility in Wales, United
Kingdom, giving Flextronics its first operation in Europe. Our intention in
Wales is to provide a facility for "localization" of products produced in high
volume in Asia and North America yet bound for countries on the European
[Photo of Michael E. Marks, Chairman and CEO]
<PAGE> 60
continent.The facility has been completely renovated, and the first localization
activities are underway.
During this time, many new customers were added, representing a variety
of industries. In the medical arena, Thermoscan, Inc. and Enact Health
Management Systems came on board. In telecommunications, we added Global Village
Communication, Inc., Advanced Fibre Communications, Inc., and Whitetree Network
Technologies, Inc. In the consumer area, we added Palm Computing, now a division
of U.S. Robotics. And in computer peripherals, we added Microsoft Corporation
and Visioneer, Inc., a supplier of low cost scanners.
The results of our efforts are shown in the charts displayed here. For
all years we have presented actual results and results before non-recurring
items which are related primarily to aquisitions, in-process R&D, and two plant
closings in the fourth quarter of fiscal 1996. Revenue has increased to $448
million from $131 million two years ago. Profits have risen even faster, from
$2.9 million to $16.6 million (before non-recurring items). And Earnings Per
Share has grown to $1.25 (before non-recurring items) from just $0.38 two years
ago.
BECOMING A BILLION DOLLAR COMPANY
Having quickly reached our objective of being in the top five contract
manufacturers in both revenue and profits (before non-recurring items), we are
now turning our attention toward new strategies designed to enable Flextronics
to grow to a $1 billion company. Outlined in some detail on the following pages
is a new strategic focus in two areas--logistics and miniaturization.
Our focus on logistics is an attempt to reduce costs associated with
handling and management of materials. We will accomplish this by locating our
factories on large campuses, where many materials will be manufactured and
supplied to the assembly operation. The focus on miniaturization encompasses all
of the activities at nCHIP, including bare die assembly, integrated passives,
and multichip assemblies on a variety of substrates.
The first significant step in these new directions was taken when we
acquired Astron during the fourth quarter of this past fiscal year. Astron is a
manufacturer of sophisticated, miniature laminate circuit boards. Astron's
capabilities fit very well with those at nCHIP, and provide an even broader set
of tools to be used in designing smaller, less expensive packaging for our
customers. In addition, Astron has a facility situated on 15 acres of land in
Doumen, China, which Flextronics now owns. This will be the site of our first
campus, on which we intend to build a 300,000 square foot facility during the
current fiscal year.
A TEAM EFFORT
The past year has been an eventful one. In addition to the very satisfactory
financial results, our Company has become much more global in terms of
operations, customers and employees. Our senior management team is comprised of
Asians, Europeans and Americans. We have found this diversity serves us well as
we develop strategies for the future. And our approximately 4,000 employees
continue to improve their skills and flexibility which enables us to lower costs
in an increasingly competitive industry. We salute them all. We also thank you,
our shareholders, for your continued support.
Best regards,
/s/ Michael E. Marks
Michael E. Marks
Chairman and CEO
CHART 1 REVENUES
----------------------
(In Millions)
1994 1995 1996
------ ------ ------
$131.3 $237.4 $448.3
CHART 2 INCOME
----------------------
(In Millions)
1994 1995 1996
------ ------ ------
Before non-recurring items ............ $2.9 $6.8 $ 16.6
Actual results ........................ $2.2 $6.2 $(17.4)
CHART 3 EARNINGS PER SHARE
----------------------
1994 1995 1996
------ ------ ------
Before non-recurring items ............ $.38 $.56 $ 1.25
Actual results ........................ $.28 $.51 $(1.39)
<PAGE> 61
A ROADMAP FOR SUCCESS
A ROADMAP FOR SUCCESS
In 1996, Flextronics International continued to fulfill its commitment to its
original business strategy--and to see the rewards of that effort. The
underlying principles of that strategy demand that the Company:
- - keep costs low and quality high;
- - provide a spectrum of advanced technologies and services;
- - maintain a global presence in strategic markets;
- - create a flexible environment to meet rapidly changing market needs.
To achieve these goals, Flextronics developed and implemented a number
of innovative programs and solutions in 1996.
DEMAND FLOW TECHNOLOGY
Perhaps most critical to the Company's success in 1996 has been its
implementation of Demand Flow Technology (DFT) in most of its factories
worldwide.
An alternative to traditional manufacturing strategies, DFT is a
comprehensive manufacturing and quality strategy that streamlines the entire
manufacturing process, from order-taking to delivery. With DFT, products are
manufactured as customers order them, parts are delivered directly to assembly
lines, assembly is done using a system known as "Kanban"--an assembly technique
whereby products are pulled down a manufacturing line instead of being pushed
through--and goods are shipped as soon as they are built.
In 1996, Flextronics reconfigured production lines in many of its
factories to apply DFT principles. Today, these factories operate with highly
efficient work "cells" that eliminate many of the non-value-added labor costs
associated with building a product. As a result, the Company has begun to see
the many benefits of DFT, including shrinking inventories, shorter cycle times,
and significantly lower costs. DFT has also made Flextronics' manufacturing
process more flexible, allowing customers to make changes in product orders even
during manufacturing cycles--and allowing the Company to meet rapidly changing
market needs.
DEDICATED FACTORIES
Also in 1996, Flextronics extended its dedicated factory concept to many of its
manufacturing facilities and customers.
Similar to DFT, the dedicated factory concept significantly reduces
cycle times and labor costs while increasing inventory turns by optimizing the
manufacturing process. Instead of operating exclusively with traditional
manufacturing lines, Flextronics dedicated space within many of its factories to
building specific customers' products. These "factories within factories" were
then specially redesigned to manufacture the products as quickly and efficiently
as possible. Some, for example, were configured to maximize repeatability, while
others were redesigned to do mixed-model manufacturing.
As with DFT, the dedicated factory concept affords Flextronics a degree
of flexibility almost un-matched in the contract manufacturing industry. Rather
than having to ask customers to conform to its manufacturing set-up, the Company
is now able to conform to its customers' product and market needs with these
dedicated factories.
COST-SAVING VENDOR PROGRAMS
To further reduce costs and improve manufacturing efficiencies, the Company
developed and implemented a number of innovative vendor programs in 1996.
With the help of key suppliers, for instance, Flextronics was able to
more efficiently implement a critical ship-to-line delivery program in its
factories this year. Under a new system, vendors are required to pass a rigorous
quality certification review administered by Flextronics. This process ensures
that suppliers deliver only the highest quality components for the Company's
use, and it eliminates the need for quality inspections upon delivery. Now,
certified vendors deliver directly to manufacturing lines, which reduces the
costs associated with shipping, receiving, and maintaining parts inventories.
This program also has increased the Company's yield and inventory turns.
Similarly, Flextronics developed a material replenishment system in
1996 that allows the Company to use components on an as-needed basis. Again,
rather than carry the cost of maintaining parts inventories on-site, Flextronics
has arranged for key suppliers to provide next-day delivery of materials based
on Company forecasts. Not only has this new system simplified the Company's
accounting efforts, but it has also reduced manufacturing lead times and
personnel requirements in receiving.
AUGMENTING THE ORIGINAL BUSINESS STRATEGY
While the original business strategy has served Flextronics well since 1993, it
must be modified periodically to help the Company maintain a competitive edge.
In 1996, Flextronics augmented its original business strategy with two
new components, one dealing with product miniaturization and the other with a
focus on logistics. These two enhancements--working in concert with the
Company's original goals and objectives--are expected to propel Flextronics to
the forefront of the contract manufacturing industry.
GRAPHIC 2
Flextronics offers a number of manufacturing
programs designed to reduce cost and
increase our customers' competitiveness
2
<PAGE> 62
[GRAPHIC 3]
THERMOSCAN, INC.
When Thermoscan went looking for a contract manufacturer who could provide low
cost, offshore manufacturing and cutting edge technologies, the company quickly
found Flextronics. With its bare die assembly techniques, Flextronics was one of
the few contract manufacturers that had both the manufacturing capability and
the microelectronics technology Thermoscan needed to produce its infrared ear
thermometers more efficiently and cost effectively. Flextronics' manufacturing
facilities in Europe, Asia, and North America could provide Thermoscan with
high-volume manufacturing in key markets worldwide. Just as importantly, though,
the Company was also experienced with chip-on-board design and manufacturing, a
sophisticated bare die assembly technique that enables the Company to produce
smaller--but higher performing and more reliable--products at a reduced cost.
Along with its advanced manufacturing, Flextronics now provides product
development services for some of Thermoscan's next-generation products.
<PAGE> 63
MINIATURIZATION
As a result of its original business strategy, Flextronics has achieved some of
the lowest labor costs and cycle times in the industry. The challenge that lies
ahead is to find additional methods for reducing the cost of production--while
continuing to provide the cutting-edge technologies and services needed to make
customers more competitive in their marketplaces.
Years ago, the Company identified miniaturization as an emerging
technology capable of lowering manufacturing costs while increasing product
competitiveness. Today, the demand for smaller, lighter electronic products with
more features and lower prices is skyrocketing--and the cost savings achieved by
packing more power into smaller spaces are growing.
As evidenced by its modified business strategy, Flextronics recognizes
the critical role that miniaturization will play in the Company's short- and
long-term success and is now focusing on that area of opportunity.
ADVANCED MINIATURIZATION TECHNOLOGIES
Having foreseen the importance of miniaturization, the Company developed and
acquired a number of innovative new manufacturing, packaging, and component
technologies for producing miniaturized electronics products.
With the 1995 purchase of nCHIP, for example, Flextronics acquired the
technical knowledge it needed to design and build products using bare die
assembly techniques. These techniques--the most advanced in the industry--are
used to create multichip module (MCM), chip-on-board (COB), ball grid array
(BGA), and flip-chip assemblies, and they enable the Company to build products
with greater performance and reliability but for a lower cost than traditional
manufacturing methods would allow.
In 1996, Flextronics was able to extend miniaturization to the
component level when it used a proprietary technology developed by nCHIP to
integrate scores of resistors and capacitors into a single piece of silicon.
Called an integrated passive, this miniaturized component not only takes up far
less space than its traditional counterparts, but it also is considerably less
expensive to make.
MICROELECTRONICS DESIGN AND MANUFACTURING
Today, Flextronics is using these advanced technologies to create--in volume--a
variety of microelectronics products. And it is these technologies that provide
the foundation for the Company's future in miniaturization.
Yet it was the acquisition of Astron in 1996 that gave the Company a
microelectronics manufacturing capability that is truly unique within the
contract manufacturing industry.
Astron, a Hong Kong-based company, is a leading manufacturer of
miniature, gold-finished printed circuit boards. These advanced laminate
substrates are used in portable computer and communications products--the very
products that require nCHIP's bare die capabilities. With the Astron
acquisition, Flextronics can now offer its customers a complete spectrum of
advanced design and manufacturing technologies and services. From traditional
pin-through-hole and surface mount (SMT) technologies to Astron's miniaturized
fineline substrates and nCHIP's advanced multichip modules, Flextronics has the
technical knowledge and capabilities needed to efficiently design and
manufacture its customers' next-generation microelectronics products.
STRATEGIC RELATIONSHIPS AND SERVICES
To further develop its competitive edge--and the one it offers to its
customers--Flextronics entered into a joint development effort with The Dow
Chemical Co. in 1996. This strategic partnership will combine Dow Chemical's
expertise in materials and packaging assembly with Flextronics' expertise in
interconnect and electronics assembly to develop advanced packaging and
interconnect technologies for the future.
This joint effort, coupled with the Company's 1996 acquisitions and
developments, positions Flextronics at the vanguard of the miniaturization
movement in the contract manufacturing industry.
Yet miniaturization is only one of the two new directions detailed in
Flextronics' modified business strategy. In the coming years, the Company
intends to secure its position as an industry leader with a new focus on
logistics.
GRAPHIC 4
Flextronics offers a complete spectrum of
manufacturing technologies to aid in the
development of next generation products.
4
<PAGE> 64
[GRAPHIC 5]
PALM COMPUTING, A DIVISION OF U.S. ROBOTICS
Providing customers with advanced technologies and services is an important part
of Flextronics' business strategy. And for the Palm Computing Division of U.S.
Robotics, it was an important reason for selecting Flextronics to help design
and manufacture its Pilot connected organizer. A software firm with an idea for
a powerful new organizational tool, Palm Computing recognized it needed help
both in developing a hardware platform for its new device and in organizing
offshore and regional manufacturing once the design was complete.
Flextronics--with its engineering services and manufacturing
capabilities--seemed the perfect choice. Working together, engineers at
Flextronics and Palm created an initial design that not only optimized the
performance and manufacturability of the new product, but that also hit the
stringent cost targets and development schedules set by the customer. Then,
operating as the project's prime contractor, Flextronics organized a battery of
experts, including those in board layout, testing, plastics and packaging before
completing final assembly. Mass production began as scheduled at Flextronics'
offshore and regional manufacturing facilities, where it continues today.
<PAGE> 65
INTRODUCING LOGISTICS
When Flextronics' management devised a new operational strategy in 1996, it
created a plan that would not only significantly reduce the costs of
manufacturing products for its customers, but that would also completely
redefine the entire material acquisition and distribution cycle.
A unique new strategy was designed to eliminate many of the
non-value-added costs associated with material procurement, production, and
distribution. And it is expected do so by eliminating the customer's involvement
in these processes.
A NEW LEVEL OF SERVICE
With the traditional production/distribution strategy, raw materials from all
over the world are brought into manufacturing facilities, where products are
assembled. Finished goods are then transported to customer warehouses and, as
demand requires, trucked to distribution centers and, finally, retail outlets
for dispersion to end users. At best, this is an expensive process--in terms of
both time and money.
Flextronics envisions a more efficient and cost-effective method of
managing the production and distribution process.
The first step in this new strategy requires the Company to establish a
series of "manufacturing campuses" in strategic locations throughout the world.
Because of its proximity to Asia and Europe, Astron's 15-acre high-technology
center in Doumen, China, has been earmarked as the Company's first manufacturing
campus. The recently expanded 100,000-square-foot manufacturing operation in San
Jose, California will eventually serve as the center of the Company's Silicon
Valley manufacturing campus. A third campus is planned for Guadularaja, Mexico
where we have 32-acres currently under contract.
As these campuses are established, the Company will then implement its
new logistics strategy. The idea is simple: Rather than have raw materials and
components brought into these sites from all over the world, the campuses will
manufacture many of the raw materials and components needed to build customer
products. These campuses will also house the manufacturing facilities that will
build the products--and once completed, the products will be moved to nearby
warehouses where they will be distributed to end users.
This streamlined approach to production and distribution can eliminate
the need for customers to take possession of their products for warehousing or
distribution. And while this logistics strategy has many advantages, the most
important is cost reduction.
With these new campuses, the Company believes it will be able to
significantly reduce manufacturing overhead and, consequently, overall product
costs. Producing some raw materials on-site will cut material costs considerably
and shorten the supply chain. The expense of freight and handling will also drop
dramatically since the components will be created at the same place from which
they are distributed. Not having to move components or materials from factory to
factory also will result in lower material packaging costs. These cost
reductions will ultimately result in a more competitive product for our
customers.
Finally, because these manufacturing campuses will be located near
major marketplaces, they will enable the Company to react more quickly to its
customers' market changes--and to get products to end users even faster.
LOOKING FORWARD
Although its original business strategy was well-conceived--and
successful--Flextronics believes the enhancements it made to that strategy in
1996 are necessary to the Company's continued success. Course changes are not
unusual in rapidly changing industries; in fact, they are often requirements.
The Company sees its new logistics strategy and focus on miniaturization as just
that essential.
In the coming year, Flextronics will continue to evaluate new
technologies and services so that it may meet--and exceed--the high expectations
of its customers. The Company is dedicated to being one of the world's leading
contract manufacturers and, for the reasons outlined above, looks forward to
1997 with enthusiasm.
GRAPHIC 6 - Logistics: The production and distribution strategy of tomorrow.
Raw materials - Manufacturing Campus located close to major market place
Distribution - End User
6
<PAGE> 66
[GRAPHIC 7]
MICROSOFT CORPORATION
By establishing itself in the three most strategic markets worldwide--North
America, Europe, and Asia--Flextronics responded to its customers' needs for
globalized manufacturing. It also opened the door to potential customers, like
Microsoft, that were looking for a contract manufacturer with just that kind of
exposure. When Microsoft began its exhaustive search for a strategic
manufacturing partner, it started by reviewing over 100 companies, evaluating
each one for quality, manufacturing locations and costs, among other things.
After nine months, only one name remained--and Flextronics was chosen to produce
Microsoft's computer peripheral devices. The Company's regional manufacturing
capabilities, particularly in Europe and Asia, and its cost competitiveness
strongly influenced Microsoft's decision--as did the fact that Flextronics does
only contract manufacturing and has no products of its own, thereby respecting
its customers' proprietary technology. Today, Flextronics manufactures the
Microsoft mouse for European and Asian markets and is an integral part of
Microsoft's U. S. product development team--reviewing next generation product
designs for manufacturability and testability, and designing complete board
layouts based on Microsoft's functionality requirements.
<PAGE> 67
FLEXTRONICS INTERNATIONAL'S
DESIGN AND MANUFACTURING FACILITIES
GRAPHIC 7 - World Map with Flextronics' locations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Except for the historical information contained herein, the matters
discussed below and elsewhere herein contain forward-looking statements
regarding the future performance of the Company and future events that involve
risks and uncertainties that could cause actual results to differ materially
from the statements contained herein. This document, and the documents that the
Company files from time to time with the Securites and Exchange Commission, such
as its reports on Form 10-K, Form 10-Q, Form 8-K and its proxy materials,
contain additional important factors that could cause actual results to differ
from the Company's current expectations and the forward-looking statements
contained herein.
OVERVIEW
The Company was organized in Singapore in 1990 to acquire the Asian
contract manufacturing operations and certain U.S. design, sales and support
operations of Flextronics, Inc. (the "Predecessor"), which had been in the
contract manufacturing business since 1982. The acquisition of the selected
operations of the Predecessor for approximately $39.0 million was completed in
June 1990 and was financed with approximately $20.0 million of secured long-term
bank debt, $4.0 million of subordinated debt and $15.0 million of equity. After
such acquisition, the equity investors held approximately 55% of the outstanding
share capital of the Company. The Company's results of operations for periods
following the 1990 acquisition and through March 1994 reflect the interest
expense associated with the indebtedness incurred in connection with this
transaction.
In July 1993 a group of new investors acquired a controlling interest
in the Company through the acquisition of substantially all of the interest in
the Company that had been retained by the Predecessor, a direct equity
investment of $3.2 million in the Company and the purchase of a portion of the
shares acquired by the investors in the 1990 acquisition. In December 1993 the
Company raised an additional $7.0 million of equity capital from investors ($3.7
million of which represented the conversion of its outstanding subordinated debt
into equity). In March 1994 the Company raised $32.5 million in an initial
public offering of Ordinary Shares. In August 1995 the Company raised an
additional $22.3 million in a public offering of Ordinary Shares.
In April 1995, the Company acquired Assembly & Automation (Electronics)
Limited ("A&A"), a contract manufacturer located in Wales, in exchange for an
aggregate of $2.9 million and 66,908 Ordinary Shares. The Company's financial
statements for fiscal 1996 include the operating results of A&A from April 12,
1995 to March 31, 1996.
Flextronics International Ltd.
8
<PAGE> 68
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
In February 1996, the Company acquired Astron Group Limited ("Astron")
for (i) $13,440,605 in cash, (ii) $15 million in promissory notes payable over a
two year period and bearing interest at a rate of 8% per annum, and (iii)
Ordinary Shares of S$0.01 each in the capital of the Company with a value of
$6,507,000. In addition, the Company will issue Ordinary Shares with a value of
$10 million to the former Astron shareholders on June 30, 1998 and will pay an
earnout of up to an additional $12.5 million in cash and Ordinary Shares
calculated in accordance with a formula based upon Astron's pre-tax profit for
calendar year 1996, on or about March 31, 1997. The Company has included $3.125
million or 25% of the earnout goals in fiscal 1996 as the management believes
that Astron will most probably be able to meet the profit target for the first
quarter. The Company has also entered into consulting agreements with the former
Chairman of Astron, which include confidentiality provisions and a convenant not
to compete. The agreements provide for the payment of an annual fee, plus a $15
million payment to be made on June 30, 1998. The Company's financial statements
for fiscal 1996 include two months of Astron's operating results.
In the fourth quarter of fiscal 1996 the Company wrote off $31.6
million of in-process research and development associated with the acquisition
of Astron and also recorded one time charges totalling $2.5 million for costs
associated with the closing of one of the Company's Malaysia plants and its
Shekou, China operations. Without taking into account these write-offs and
charges, the Company's net income and earnings per share in fiscal 1996 were
$16.6 million and $1.25, respectively.
The Company's subsidiaries, with the exception of Astron, are
interdependent and are not managed for stand alone results. Certain operational
functions for the entire Company, such as marketing and administration, may be
carried out by a subsidiary in one country. In addition, the Company may from
time to time shift responsibilities from a subsidiary in one country to a
subsidiary in another country, thereby changing the operating results of the
impacted subsidiaries but not the Company as a whole. For these reasons, the
Company believes that changes in results of operations in the individual
countries in which it operates are not necessarily reflective of material
changes in the Company's overall results.
The selected financial data set forth below as of March 31, 1994, 1995
and 1996, and for the fiscal years ended March 31, 1993, 1994, 1995 and 1996 has
been derived from consolidated financial statements of the Company which have
been audited by Ernst & Young, independent auditors, whose report thereon is
included elsewhere herein. The Company accounted for the January 1995
acquisition of nCHIP as a pooling of interest. Therefore, the financial data
presented below for fiscal years 1992, 1993, 1994 and 1995 include the
historical results of nCHIP. These historical results are not necessarily
indicative of the results to be expected in the future.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31, 1992 1993 1994 1995 1996
-----------------------------------------------------------------------------------------------------------
(in thousands except per share amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales $ 80,729 $ 100,759 $ 131,345 $ 237,386 $ 448,346
Cost of sales 73,361 91,794 117,392 214,865 406,457
------------------------------------------------------------
Gross profit 7,368 8,965 13,953 22,521 41,889
Selling, general and administrative expenses 7,252 7,131 8,667 11,468 18,587
Research and development 2,737 81 202 91 31,562
Goodwill/intangible assets amortization 399 388 419 755 1,061
Provision for plant closings 202 -- 830 -- 2,454
------------------------------------------------------------
Operating income (loss) (3,222) 1,365 3,835 10,207 (11,775)
Interest expense and other, net 2,898 2,329 1,376 1,043 1,846
Merger expenses -- -- -- 816 --
Income (loss) from joint venture -- -- (70) (729) --
------------------------------------------------------------
Income (loss) before income taxes (6,120) (964) 2,389 7,619 (13,621)
Provision for income taxes 398 264 654 1,463 3,791
Extraordinary gain -- -- 416 -- --
------------------------------------------------------------
Net income (loss) $ (6,518) $ (1,228) $ 2,151 $ 6,156 $ (17,412)
============================================================
Net income (loss) per share $ (0.89) $ (0.17) $ 0.28 $ 0.51 $ (1.39)
============================================================
Weighted average Ordinary Shares
and equivalents 7,284 7,382 7,730 12,103 12,536
============================================================
<CAPTION>
March 31, 1992 1993 1994 1995 1996
-----------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Working capital $ 856 $ (1,201) $ 30,669 $ 33,425 $ 27,676
Total assets 41,734 52,430 103,129 116,117 214,588
Long-term debt and capital lease
obligations, excluding current portion 7,514 17,243 4,755 6,890 28,360
Shareholders' equity (1,040) (2,256) 46,703 57,717 70,779
</TABLE>
Flextronics International Ltd.
9
<PAGE> 69
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statement of operations data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
Fiscal Year Ended March 31, 1994 1995 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 89.4 90.5 90.7
---------------------------
Gross profit 10.6 9.5 9.3
Selling, general and administrative expenses 6.6 4.9 4.2
Goodwill/intangible assets amortization 0.3 0.3 0.2
Provision for plant closings 0.6 -- 0.5
Research and development 0.2 -- 7.0
---------------------------
Operating income (loss) 2.9 4.3 (2.6)
Interest expense and other, net 1.0 0.5 0.4
Merger expenses -- 0.3 --
Income (loss) from joint venture (0.1) (0.3) --
---------------------------
Income (loss) before income taxes 1.8 3.2 (3.0)
Provision for income taxes 0.5 0.6 0.9
Extraordinary gain 0.3 -- --
---------------------------
Net income (loss) 1.6% 2.6% (3.9%)
===========================
</TABLE>
NET SALES
Net sales in fiscal 1996 increased 89% to $448 million from $237
million in fiscal 1995. This increase was primarily due to higher sales to
existing customers, including Lifescan (a Johnson & Johnson Company), Visioneer,
Microcom and Global Village Communications, sales to new customers in the
computer and medical industries such as Apple Computer and Thermoscan and the
inclusion of A&A's and Astron's sales after their acquisitions in April 1995 and
February 1996, respectively. As expected, sales to IBM declined significantly
due to IBM's efforts to consolidate more of its manufacturing business
internally. The Company expects sales in the first quarter of fiscal 1997 to be
approximately the same as the sales in the fourth quarter of fiscal 1996 due to
softening of the PC peripheral business during this period.
Net sales in fiscal 1995 increased 81% to $237 million from $131
million in fiscal 1994. This increase was primarily the result of higher sales
to existing customers, including Lifescan (a Johnson & Johnson Company), IBM and
Interbold and sales to new customers in the consumer electronics industries such
as Phonex, International Components Corporation and Global Village
Communications.
GROSS PROFIT
Gross profit is affected by, among other things, product mix, component
costs, product life cycles, unit volumes, start up of new manufacturing
facilities and new product introductions. Gross profit margin declined slightly
to 9.3% in fiscal 1996 as compared to 9.5% in fiscal 1995 mainly due to the
additional costs associated with new manufacturing facilities in Texas and China
that were opened in the fourth quarter of fiscal 1995 and the expansion of
nCHIP's MCM fab facility. The decrease in gross profit margin was also
attributable to a reduction in certain selling prices in order to remain
competitive.
Gross margin decreased to 9.5% in fiscal 1995 as compared to 10.6% in
fiscal 1994, principally as a result of the consolidation of nCHIP's results of
operations with the Company and sales to new customers, which typically entail
higher expenses and lower margin initially.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses in fiscal 1996 increased
to $18.6 million from $11.5 million in fiscal 1995, but decreased as percentage
of net sales to 4.2% in fiscal 1996 from 4.9% in fiscal 1995. The increase in
absolute dollars was principally due to costs associated with the expanded
facilities in China and Texas, increased sales personnel and market research
activities in U.S. and the inclusion of A&A's and Astron's selling and general
administrative expenses after their acquisitions in April, 1995 and February,
1996, respectively. The Company anticipates that selling, general and
administrative expenses will continue to increase in absolute dollars.
Selling, general and administrative expenses in fiscal 1995 increased
to $11.5 million from $8.7 million in fiscal 1994, but decreased as a percentage
of net sales to 4.9% in fiscal 1995 from 6.6% in fiscal 1994. The increase in
absolute dollars was principally due to costs associated with increases in
corporate administrative expenses and provision for doubtful accounts, the
Flextronics International Ltd.
10
<PAGE> 70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
inclusion of Relevant's selling and general administrative expenses, and
provision for severance payment to certain nCHIP personnel.
GOODWILL AND INTANGIBLE ASSETS
Goodwill, which represents the excess of the purchase price of an
acquired company over the fair market value of its net assets, and intangible
assets are amortized on a straight line basis. Goodwill amortization increased
from $510,000 in fiscal 1995 to $725,000 in fiscal 1996 primarily due to the
goodwill from the Company's acquisition of A&A. Intangible asset amortization
increased from $245,000 in fiscal 1995 to $336,000 in fiscal 1996 primarily due
to the acquisition of A&A and Astron.
Due to the acquisition of Relevant, goodwill amortization increased
from $398,000 in fiscal 1994 to $510,000 in fiscal 1995 and intangible assets
amortization increased from $21,000 in fiscal 1994 to $245,000 in fiscal 1995.
PROVISION FOR PLANT CLOSINGS
The provision for plant closings of $2.5 million in fiscal 1996
includes a $1.0 million provision for inventory exposure and $1.3 million
associated with the write-off of certain obsolete equipment at one of the
Company's facilities in Malaysia and in Shekou, China. The provision for plant
closings were related to the Company ceasing its satellite receiver product line
in Malaysia and the closing of its manufacturing operations in Shekou, China.
These plant closings reflect the Company's strategy to move away from a large
number of small facilities and toward larger, campus type operations. Production
from the Shekou facility has been moved to the Company's plant in Xixiang,
China.
RESEARCH AND DEVELOPMENT
In connection with the Astron acquisition the Company engaged Duff &
Phelps Capital Markets Co. ("DPCM") to determine the fair market value of
Astron's research and development assembly in process. ("In-Process R&D"). The
valuation of the In-Process R&D was performed using the discounted cashflow
technique whereby the future cashflow expected to be generated is determined by
the current level of technology investment by Astron. DPCM determined the
valuation to be between $31 million and $37 million, and the Company has written
off $31.6 million of In-Process R&D in fiscal 1996.
INTEREST EXPENSE AND OTHER, NET
Interest expense and other, net increased to $1.8 million in fiscal
1996 from $1.0 million in fiscal 1995. The increase reflects interest incurred
in connection with additional indebtedness used to finance the cash portion of
the A&A and Astron acquisitions, to purchase machinery and equipment for
capacity expansion and to finance the Company's working capital requirements.
The Company has recorded an unrealized foreign exchange gain of $872,000 in
fiscal 1996 compared to a foreign exchange loss of $303,000 in fiscal 1995 due
to weaker Malaysian Ringgit and Singapore dollars.
Interest expense and other, net decreased to $1.0 million in fiscal
1995 from $1.4 million in fiscal 1994. The decrease reflects lower interest
expense during this period as a result of the repayment of long term bank debt
in March 1994 and repayment of short-term advances in April 1994, and higher
income earned on cash balances for the first six months of fiscal 1995.
MERGER EXPENSES
The Company recorded a one-time non-operating charge of approximately
$816,000 as a result of the nCHIP acquisition in January 1995.
INCOME (LOSS) FROM JOINT VENTURE
Flextracker, the joint venture with HTS in which the Company previously
owned a 49% interest, commenced operations in June 1993. According to the equity
method of accounting, the Company previously did not recognize revenue from
sales by Flextracker, but based on its ownership interest recognized 49% of the
net income or loss of the joint venture. Due to start-up costs and manufacturing
inefficiencies, the Company recognized a loss of $729,000 and $70,000 associated
with its interest in Flextracker in fiscal 1995 and fiscal 1994 respectively.
The Company initially contributed $2.5 million for a 49% interest in Flextracker
and HTS contributed $2.6 million for the remaining 51% interest. In April 1994
the Company and HTS each loaned $1 million to Flextracker. In December 1994, the
Company acquired all of the net assets of Flextracker (except the $1.0 million
loan made by HTS to Flextracker) for approximately $3.3 million.
PROVISION FOR INCOME TAXES
The Company is structured as a holding company with several operating
subsidiaries. The Company conducts its operations in Asia primarily through its
manufacturing and marketing subsidiaries incorporated in Singapore, Malaysia,
Hong Kong
Flextronics International Ltd.
11
<PAGE> 71
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
and China, and each of these subsidiaries is subject to taxation in the country
in which it has been formed. The Company's manufacturing subsidiaries have been
granted certain tax relief in each of these countries, resulting in lower taxes
than would otherwise be the case under ordinary tax rates. The ordinary
corporate tax rates for calendar 1995 were 26%, 16.5% and 15% in Singapore, Hong
Kong and China, respectively, and 30% on manufacturing operations in Malaysia.
In addition, the tax rate is de minimis in Labuan, Malaysia and Mauritius where
the Company's offshore marketing and distribution subsidiaries are located.
The Company's consolidated effective tax rate for any given period is
calculated by dividing the aggregate taxes incurred by each of the operating
subsidiaries and the holding company by the Company's consolidated pretax
income. Losses incurred by any subsidiary or by the holding company are not
deductible by the other entities in the calculation of their respective local
taxes. For example, the charge for the closing of one plant in Malaysia in
fiscal 1996 was incurred by a Malaysian subsidiary that did not have income
against which this charge could be offset. Similarly, interest on senior debt,
which was an obligation of the holding company, produced losses for that
company. Losses of the Hong Kong subsidiary and holding company were not
deducted from the income of the other subsidiaries. In addition, nCHIP's
historical losses and the accounting of its acquisition as a pooling of
interests have negatively impacted the Company's pre-tax performance, resulting
in a higher effective tax rate for the prior periods.
The Company's consolidated effective tax rate was 27.8% and 19.2% in
fiscal 1996 and 1995 respectively. Variations in the Company's consolidated
effective tax rates are primarily attributable to the differences in the
relative amount of holding company interest expense compared to the amount of
pretax income in the respective periods, as well as the impact of nCHIP's
historical losses and the accounting of its acquisition as a pooling of
interests. In addition, the provision for plant closings of $2.5 million and the
$31.6 million write-off of In-Process R&D in fiscal 1996 have contributed to the
higher consolidated effective tax rate in that period. If the provision for
plant closings and In-Process R&D written off are excluded from such
calculation, the Company's fiscal 1996 effective tax rate would have been 18.6%.
The Company's Singapore operations were previously granted "Pioneer
Status", which expired on July 31, 1990. Under such status the Singapore
subsidiary's manufacturing income had been exempt from tax. The Company has
reached an agreement with the Economic Development Board of Singapore for a
specified amount of investment allowances on approved fixed capital
expenditures. This investment allowance, which has certain conditions and
expired in July 1995, has been utilized by the Company to reduce taxable income
of the Singapore subsidiary since fiscal 1991. The Company's Malaysian
manufacturing subsidiary has been granted a five-year pioneer incentive which
provides a tax exemption on manufacturing income in Johore, Malaysia. To date,
this incentive has had a limited impact on the Company due to the relatively
short history of its Malaysian operations and its losses carry forward. The
Company's facility in China is located in a "Special Economic Zone" and is an
approved "Product Export Enterprise" which qualifies for a special corporate
income tax rate of 10%. This special tax rate is subject to the Company
exporting more than 70% of its total value of products manufactured in China,
and the Company's status as a Product Export Enterprise is reviewed annually by
the Chinese government authorities. The Company's investments in its plant in
Xixiang, China and Astron fall under the "Foreign Investment Scheme" which
entitles the Company to apply for a five year tax incentive. The Company has
applied for the tax incentive and believes that it will be approved by the
relevant tax authorities, although there can be no assurance in this regard. If
approval is received, the Company's tax rates on income from this facility
during the incentive period will be 0% in years 1 and 2 and 7 1/2 % in years 3
through 5. In fiscal 1993, the Company transferred its offshore marketing and
distribution functions to a newly formed marketing subsidiary located in Labuan,
Malaysia, where the tax rate is de minimis. In February 1996, the Company
transferred Astron's sales and marketing business to a newly formed subsidiary
in Mauritius, where the tax rate is at 0% .
The Company has structured its operations in Asia in a manner designed
to maximize income in countries where tax incentives have been extended to
encourage foreign investment or where income tax rates are low. If tax
incentives are not renewed upon expiration, if the tax rates applicable to the
Company are rescinded or changed, or if tax authorities were to challenge
successfully the manner in which profits are recognized among the Company's
subsidiaries, the Company's taxes would increase and its results of operations
and cash flow would be adversely affected. Substantially all of the products
manufactured by the Company's Asian subsidiaries are sold to U.S. based
customers. While the Company believes that profits from its Asian operations are
not sufficiently connected to the U.S. to give rise to U.S. federal or state
income taxation, there can be no assurance that U.S. tax authorities will not
challenge the Company's position or, if such challenge is made, that the Company
will prevail in any such disagreement. If the Company's Asian profits became
subject to U.S. income taxes, the Company's taxes could increase and its results
of operations and cash flow could be adversely affected. The expansion by the
Company of its operations in the U.S may increase its effective tax rate.
There are no Singapore exchange controls or other restrictions on the
export or import of capital. The remittance of dividends or other payments by
the Company to non-resident shareholders is therefore not subject to any
restriction. Singapore
Flextronics International Ltd.
12
<PAGE> 72
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
does not currently have a double tax treaty with the United States of America.
However, under the current Singapore tax rules, there is no Singapore
withholding tax on payments of dividends or other distributions by the Company
to its non-resident shareholders.
EXTRAORDINARY GAIN
The extraordinary gain of $416,000 in fiscal 1994 represents the
forgiveness of accrued interest on the Company's outstanding subordinated debt,
the principal amount of which was converted into equity in December 1993.
VARIABILITY OF RESULTS
The Company has experienced, and expects to continue to experience,
significant periodic and quarterly fluctuations in the Company's results of
operations. These factors include, among other things, timing of orders, volume
of orders relative to the Company's capacity, customers' announcement and
introduction of new products or new generations of products, evolutions in the
life cycles of customers' products, timing of expenditures in anticipation of
future orders, effectiveness in managing manufacturing processes, changes in
cost and availability of labor and components, mix of orders filled, and changes
or anticipated changes in economic conditions. In addition, the Company's
operating results are affected adversely by seasonality (principally in Malaysia
and China during each fourth fiscal quarter due to local holiday seasons). The
market segments served by the Company are also subject to economic cycles and
have in the past experienced, and are likely in the future to experience,
recessionary periods. A recessionary period affecting the industry segments
served by the Company could have a material adverse effect on the Company's
results of operations. Results of operations in any period should not be
considered indicative of the results to be expected for any future period, and
fluctuations in operating results may also result in fluctuations in the price
of the Company's Ordinary Shares.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations from the proceeds of public
offerings of equity securities, cash generated from operations, bank debt and
lease financing of capital equipment. At March 31, 1994 the outstanding balance
on the Company's total borrowing was $10.5 million, substantially all of which
was repaid in April 1994 with a portion of the net proceeds of the Company's
initial public offering. The Company has obtained a $48 million line of credit
from several banks and is negotiating for a $50 million, two year revolving
credit facility to replace the existing facilities.
Cash used for operating activities was $710,000 and $3.4 million for
fiscal 1996 and 1995, respectively. Cash provided by operating activities for
fiscal 1996 was comprised primarily of net profit of $16.6 million (excluding
In-Process R&D written off and provision for plant closings), depreciation,
amortization and allowance for doubtful accounts and obsolescence. Cash used for
operating activities was primarily comprised of increases in accounts receivable
and inventories reflecting higher sales in fiscal 1996. Cash provided by
operating activities for fiscal 1995 was comprised primarily of net income,
depreciation amortization allowance for doubtful debts, loss from the
Flextracker joint venture and cash used for operating activities for fiscal 1995
was comprised mainly of an increase in accounts receivable and inventories.
Cash used for investing activities during fiscal 1996 consisted
primarily of $15.8 million of expenditures for machinery and equipment in the
Company's Texas, China and California manufacturing facilities as well as
payment of $15.2 million for the cash portion of the A&A and Astron
acquisitions. Cash used for investing activities for fiscal 1995 was $10.2
million which consisted mainly of purchases of property and equipment in three
Asia plants and payment for the acquisition of the net assets of FlexTracker.
Cash provided by financing activities was $31.6 million in fiscal 1996
which consisted primarily of $22.3 million from the sale of 1,000,000 newly
issued Ordinary Shares and net bank borrowings of $12.3 million. Cash used for
financing activities was $10.8 million for fiscal 1995 which consisted primarily
of repayment of bank borrowings and notes payable, offset in part by proceeds
from issuance of share capital and increased capital lease financing.
The Company's allowances for doubtful accounts increased from $1.8
million at March 31, 1995 to $3.6 million at March 31, 1996. The Company
allowance for inventory obsolescence increased from $ 1.9 million at March 31,
1995 to $ 4.6 million at March 31, 1996. The increases in the allowances were
due to the increases in sales and inventories during fiscal 1996 and the $1
million provision for inventory exposure relating to the closing of the
satellite receiver product line in one of the Company's Malaysia plants.
The Company presently anticipates that its capital expenditures in
fiscal 1997 will be approximately $20 million to $25 million. The Company
believes that existing cash, together with anticipated cash flow from operations
and amounts available under its credit facilities, will be sufficient to fund
its operations through fiscal 1997.
Flextronics International Ltd.
13
<PAGE> 73
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1995 1996
- -------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 4,751 $ 6,546
Accounts receivable, net of allowance for doubtful accounts of $1,760
and $3,576 at March 31, 1995 and 1996 respectively 44,250 78,114
Inventories 30,193 52,637
Other current assets 4,527 3,827
Deferred income taxes 220 260
----------------------
Total current assets 83,941 141,384
----------------------
PROPERTY AND EQUIPMENT:
Machinery and equipment 43,358 77,771
Building 283 5,736
Leasehold improvements 3,891 15,491
----------------------
47,532 98,998
Accumulated depreciation and amortization (21,774) (37,896)
----------------------
Net property and equipment 25,758 61,102
----------------------
OTHER NON-CURRENT ASSETS:
Goodwill, net of accumulated amortization of $1,976 and $2,701,
at March 31, 1995 and 1996 respectively 4,964 8,662
Intangible assets, net of accumulated amortization of $306 and $642,
at March 31, 1995 and 1996 respectively 624 775
Deposits and other 226 580
Receivables from related party -- 2,085
Other investments 520 --
Deferred income taxes 84 --
----------------------
Total other non-current assets 6,418 12,102
----------------------
Total assets $ 116,117 $ 214,588
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank borrowings $ 2,000 $ 14,379
Notes payable -- 10,000
Current portion of long-term debt 9 4,198
Current portion of capital lease 3,911 6,736
Accounts payable 38,489 64,625
Accrued payroll 2,549 5,606
Other accrued liabilities 2,029 5,389
Income taxes payable 1,529 2,775
----------------------
Total current liabilities 50,516 113,708
----------------------
NON CURRENT LIABILITIES:
Notes payable to shareholders 684 686
Long-term debt, less current portion -- 2,554
Other payable -- 15,000
Capital lease, less current portion 6,206 10,120
Deferred income taxes 994 1,256
Commitments (Notes 4 and 5) -- --
----------------------
Total non-current liabilities 7,884 29,616
Minority interests -- 485
----------------------
SHAREHOLDERS' EQUITY:
Ordinary Shares, S$.01 par value:
Authorized -- 100,000,000 shares at
March 31, 1995 and 1996
Issued and outstanding -- 11,603,496
shares at March 31, 1995 and
13,213,289 shares at March 31, 1996 73 85
Additional paid-in capital 62,882 93,634
Accumulated deficit (5,238) (22,940)
----------------------
Total shareholders' equity 57,717 70,779
----------------------
Total liabilities and shareholders' equity $ 116,117 $ 214,588
======================
</TABLE>
See accompanying notes.
Flextronics International Ltd.
14
<PAGE> 74
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended March 31, 1994 1995 1996
- -------------------------------------------------------------------------------------------------------------
(In thousands, except per share amounts)
<S> <C> <C> <C>
Net sales $ 131,345 $ 237,386 $ 448,346
Cost of sales 117,392 214,865 406,457
-----------------------------------
Gross profit 13,953 22,521 41,889
Selling, general and administrative expenses 8,667 11,468 18,587
Goodwill amortization 398 510 725
Intangible assets amortization 21 245 336
Provision for plant closings 830 -- 2,454
Research and development 202 91 31,562
-----------------------------------
Operating income/(loss) 3,835 10,207 (11,775)
Interest expense (1,778) (740) (2,718)
Merger expenses -- (816) --
Foreign exchange gain (loss) 402 (303) 872
Income (loss) from joint venture (70) (729) --
-----------------------------------
Income (loss) before income taxes and cumulative effect of change in
accounting for income taxes 2,389 7,619 (13,621)
Provision for income taxes 97 1,463 3,791
-----------------------------------
Income (loss) after income taxes, before cumulative effect of change in
accounting for income taxes and extraordinary gain 2,292 6,156 (17,412)
Cumulative effect as of March 31, 1994 of change in accounting
for income taxes 557 -- --
-----------------------------------
Income (loss) before extraordinary gain 1,735 6,156 (17,412)
Extraordinary gain 416 -- --
-----------------------------------
Net income (loss) $ 2,151 $ 6,156 $ (17,412)
===================================
Earnings per share:
Net income (loss) before cumulative effect of change in accounting
for income taxes and extraordinary gain $ 0.30 $ 0.51 $ (1.39)
Cumulative effect of accounting change (0.07) -- --
-----------------------------------
Net income (loss) before extraordinary gain $ 0.23 $ 0.51 $ (1.39)
Extraordinary gain 0.05 -- --
-----------------------------------
Net income (loss) per share $ 0.28 $ 0.51 $ (1.39)
===================================
Weighted average outstanding Ordinary Shares and equivalents 7,730 12,103 12,536
===================================
</TABLE>
See accompanying notes.
Flextronics International Ltd.
15
<PAGE> 75
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class "A" Class "B" Total
Convertible Convertible Redeemable Additional Share-
Preference Shares Preference Shares Ordinary Shares Paid-in Retained holders'
Shares Amount Shares Amount Shares Amount Capital Earnings Equity
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1993 2,700 $ 15 51 $ -- 2,404 $16 $ 10,662 $(12,949) $ (2,256)
Issuance of "A" Convertible
Preference Shares for cash 27 2 -- -- -- -- 65 -- 67
Issuance of Ordinary Shares for
cash and from capitalization of
Subordinated Note Payable -- -- -- -- 2,968 19 10,449 -- 10,468
Compensation expense related to
stock options -- -- -- -- -- -- 159 -- 159
Issuance of Ordinary Shares for
acquisition of subsidiary -- -- -- -- 600 4 3,998 -- 4,002
Issuance of Ordinary Shares in the
initial public offering (net) -- -- -- -- 2,500 15 32,088 -- 32,103
Exercise of stock options -- -- -- -- 54 -- -- -- --
Conversion of Preference Shares
to Ordinary Shares (2,727) (17) (51) -- 2,778 17 -- -- --
Net income for the year -- -- -- -- -- -- 2,151 2,151
Transaction by pooled companies:
Issuance of common stock -- -- -- -- -- -- 9 -- 9
----------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1994 -- $ -- -- $ -- 11,304 $71 $ 57,430 $(10,798) $ 46,703
nCHIP fiscal year conversion -- -- -- -- -- -- -- (596) (596)
Issuance of Ordinary Shares -- -- -- -- 300 2 925 -- 927
Expenses related to issuance
of Ordinary Shares -- -- -- -- -- -- (968) -- (968)
Net income for the year -- -- -- -- -- -- -- 6,156 6,156
Transactions by pooled companies:
Issuance of common stock -- -- -- -- -- -- 37 -- 37
Issuance of preference stock -- -- -- -- -- -- 5,458 -- 5,458
----------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1995 -- $ -- -- $ -- 11,604 $73 $ 62,882 $ (5,238) $ 57,717
Issuance of Ordinary Shares for
acquisition of subsidiaries -- -- -- -- 305 2 7,443 -- 7,445
Issuance of Ordinary Shares -- -- -- -- 304 2 1,007 -- 1,009
Secondary listing -- -- -- -- 1,000 8 23,492 -- 23,500
Expenses related to secondary listing -- -- -- -- -- -- (1,190) -- (1,190)
Currency translation adjustments -- -- -- -- -- -- -- (290) (290)
Net loss for the year -- -- -- -- -- -- -- (17,412) (17,412)
----------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1996 -- $ -- -- $ -- 13,213 $85 $ 93,634 $(22,940) $ 70,779
========================================================================================
</TABLE>
See accompanying notes.
Flextronics International Ltd.
16
<PAGE> 76
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31, 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,151 $ 6,156 $(17,412)
Adjustments to reconcile net income to cash provided
by operating activities:
nCHIP fiscal year conversion -- (596) --
Depreciation and amortization of equipment
and leasehold improvements 4,202 5,370 9,344
Amortization of goodwill 398 510 725
Amortization of intangible assets 21 245 336
Loss / (gain) on disposal of property and equipment 368 56 (121)
Loss on disposal of investment -- -- 266
Write-off of property and equipment 20 -- --
Extraordinary gain (416) -- --
Allowance for doubtful debts (32) 1,211 1,475
Allowance for stock obsolescence (120) 43 631
Compensation expense relating to stock option plan 159 -- --
Loss from joint venture 70 729 --
In process research and development written off -- -- 31,562
Provision for plant closure -- -- 2,454
Deferred income taxes 339 237 84
--------------------------------
$ 7,160 $ 13,961 $ 29,344
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Trade accounts receivable $ (8,306) $(15,057) $(28,965)
Notes receivable -- -- (500)
Inventories (5,863) (3,156) (19,209)
Other accounts receivable (572) (2,430) 2,889
Due from joint venture (1,588) -- --
Deposits and other (121) 311 (140)
Accounts payable 14,812 2,995 14,143
Other accounts payable 1,283 (841) 727
Deferred rent (1,302) (143) (120)
Income taxes payable 111 933 1,121
--------------------------------
Cash provided by (used for) operating activities $ 5,614 $ (3,427) $ (710)
--------------------------------
</TABLE>
Flextronics International Ltd.
17
<PAGE> 77
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended March 31, 1994 1995 1996
- ---------------------------------------------------------------------------------------------------------
(In thousands)
<S> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment $ (5,246) $ (7,536) $(15,812)
Proceeds from sale of property and equipment 2,301 38 228
Intangibles arising from acquisition of subsidiaries -- (62) --
Other investments (120) -- 886
Investment in joint venture (2,529) -- --
Restricted cash 379 -- --
Loan to joint venture -- (1,000) --
Redemption of preference shares in joint venture -- 1,730 --
Payment for business acquired, net of cash acquired -- (3,343) (15,152)
Repayment of loan from related party -- -- 815
--------------------------------
Cash used for investing activities $ (5,215) $(10,173) $(29,035)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from (repayments to) banks $ 1,177 $ (9,417) $ 12,280
Proceeds from (repayment of) long-term debt (13,008) (8) 1,803
Repayment of capital lease obligations (1,998) (4,310) (5,767)
Proceeds from issuance of share capital 38,598 5,454 1,009
Proceeds from notes payable 1,449 -- --
Payments on notes payable (224) (2,535) (17)
Proceeds from secondary listing -- -- 22,310
--------------------------------
Cash provided by (used for) financing activities 25,994 (10,816) 31,618
--------------------------------
Increase (decrease) in cash and cash equivalents $ 26,393 $(24,416) $ 1,873
Effect of exchange rate changes on cash and cash equivalents -- -- (78)
Cash and cash equivalents at beginning of period 2,774 29,167 4,751
--------------------------------
Cash and cash equivalents at end of period $ 29,167 $ 4,751 $ 6,546
================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid (refunded) for:
Interest $ 1,579 $ 779 $ 2,482
Income taxes (200) 297 2,656
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital lease obligations 494 8,338 11,556
Additional ordinary shares issued upon conversion
of subordinated note debt 3,658 -- --
Purchase of subsidiaries financed by issuance of
600,000 ordinary shares valued at $6.67 4,002 -- --
66,908 ordinary shares valued at $14.019 -- -- 938
238,684 ordinary shares valued at $27.262 -- -- 6,507
</TABLE>
See accompanying notes.
Flextronics International Ltd.
18
<PAGE> 78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION OF THE COMPANY
Flextronics International Ltd. was incorporated in the Republic of Singapore on
May 31, 1990 as Flex Holdings Pte Limited. The subsidiary companies are located
in Singapore, Malaysia, Hong Kong, the People's Republic of China, United
Kingdom, Mauritius and the United States. The Company was incorporated to
acquire the Asian and certain U.S. operations of Flextronics Inc. (the
"Predecessor"). The Predecessor had been involved in contract manufacturing
operations in Singapore since 1982, Hong Kong since 1983 and the People's
Republic of China since 1987.
The Company offers advanced contract manufacturing services of
sophisticated original equipment manufacturers (OEMs) in the communications,
computer, consumer and medical electronics industries. Flextronics offers a full
range of services including microelectronics packages and printed circuit board
(PCB) assembly design and fabrication, material procurement, inventory
management, PCB assembly, final system box build and distribution.
The Company's fiscal year-end is March 31. The Company follows
accounting policies which are in accordance with principles generally accepted
in the United States.
2. SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Flextronics International Ltd. and its subsidiaries (together "the Company"),
after elimination of all significant intercompany balances and transactions.
Investments in affiliates owned 20% or more and corporate joint ventures in
which the Company does not have control, but has the ability to exercise
significant management influence over operating and financial policies, are
accounted for by the equity method. Other securities and investments are
generally carried at cost.
All dollar amounts included in the financial statements and in the
notes herein are U.S. dollars unless designated as Singapore dollars (S$).
FOREIGN EXCHANGE
The Company, with the exception of certain subsidiaries, considers the U.S.
dollar as its functional currency. This is because the majority of the Company's
sales are billed and collected in U.S. dollars, and the majority of the
Company's purchases, such as raw materials, are invoiced and paid in U.S.
dollars.
Accordingly, transactions in currencies other than the functional
currency are measured and recorded in U.S. dollars using the exchange rate in
effect at the date of the transaction. At each balance sheet date, recorded
monetary balances that are denominated in currencies other than the functional
currency are adjusted to reflect the rate at the balance sheet date. All gains
and losses resulting from the translation of accounts designated in other than
the functional currency are reflected in the determination of net income in the
year in which they occur.
For inclusion in the consolidated financial statements, all assets and
liabilities of foreign subsidiaries having a functional currency other than the
U.S. dollar are translated into U.S. dollars at the exchange rate ruling at the
balance sheet date and the results of these foreign subsidiaries are translated
into U.S. dollars at the weighted average exchange rates. Exchange differences
due to such currency translations are recorded in shareholders' equity.
CASH AND CASH EQUIVALENTS
For purposes of statement of cash flows, the Company considers highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization are
provided on a straight-line basis over the estimated useful lives of the related
assets (two to twenty-two years).
CONCENTRATION OF CREDIT RISK
The Company is a turnkey manufacturer of sophisticated electronics for original
equipment manufacturers engaged in the computer, medical, consumer and
communications industries. Financial instruments which potentially subject the
Company to concentration of credit risk are primarily accounts receivable and
cash equivalents. The Company performs ongoing credit evaluations of its
customers' financial conditions and, generally, requires no collateral from its
customers. The Company maintains cash and cash equivalents with various
financial institutions. These financial institutions are located in many
different geographic locations throughout the world.
The allowance for doubtful accounts the Company maintains is based upon
the expected collectibility of all accounts receivable.
GOODWILL
Goodwill represents the excess of the purchase price of acquired companies over
the fair value of the net assets acquired. Goodwill is amortized on a straight
line basis over the estimated life of the benefits received which ranges from
ten to twenty-five years. On an annual basis, the Company evaluates recorded
goodwill for potential impairment against the current and estimated undiscounted
future operating income before goodwill amortization of the businesses to which
the goodwill relates.
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 amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
INTANGIBLE ASSETS
Intangible assets comprise technical agreements, patents, trademarks and
identifiable intangible assets in a subsidiary's assembled work force, its
favourable lease and its customer list.
Technical agreements are being amortized on a straight line basis over
periods not exceeding five years. Patents and trademarks are being amortized on
a straight line basis over periods not exceeding seventeen years. The
identifiable intangible assets in the subsidiary's assembled work force, its
favourable lease and its customer list are amortized on a straight line basis
over the estimated life of the benefits received of three years.
INVENTORIES
Inventories are stated at the lower of cost or market value. Cost is comprised
of direct materials on a first-in-first-out basis and in the case of finished
products and work-in-progress includes direct labor and attributable production
overheads based on normal levels of activity. The components of inventories are
as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 21,691 $ 42,202
Work-in-process 10,249 14,049
Finished goods 128 962
-------------------------
32,068 57,213
Less: allowance for obsolescence (1,875) (4,576)
-------------------------
$ 30,193 $ 52,637
=========================
</TABLE>
REVENUE RECOGNITION
Revenue from product sales and services are recognized on delivery and
acceptance of the goods.
Flextronics International Ltd.
19
<PAGE> 79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
INCOME TAXES
Effective April 1, 1993, the Company changed its method of accounting for income
taxes from the deferred method to the liability method required by SFAS
Statement No. 109, "Accounting for Income Taxes".
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of Ordinary
Shares and Ordinary Share equivalents outstanding during the respective periods.
Ordinary Share equivalents include Ordinary Shares issuable upon the exercise of
stock options (using the treasury stock method). Pursuant to Securities and
Exchange Commission Staff Accounting Bulletin (SAB) No. 83, Ordinary Shares and
Ordinary Share equivalents issued by the Company during the twelve-month period
prior to the initial public offering have been included in the calculation of
Ordinary Shares and Ordinary Share equivalents using the treasury stock method
and the initial public offering price of US $14 per share as if they were
outstanding for all periods presented.
<TABLE>
<CAPTION>
(in thousands, except per share data) 1994 1995 1996
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Supplemental net income (loss) per share $ 0.32 $ 0.51 $ (1.39)
Weighted average ordinary shares 6,740 12,103 12,536
</TABLE>
Supplemental net income/(loss) per share is calculated in accordance
with Accounting Principles Board Opinion No.15 (APB 15). The supplemental net
income/(loss) per share amounts are presented for comparison purposes because
under APB 15 the effect of options is excluded from the net income/(loss) per
share calculation if anti-dillutive, whereas, under SAB No. 83, such options are
considered outstanding even if the effect of including them is anti-dillutive.
RETROACTIVE RESTATEMENTS
The consolidated financial statements give retroactive effect to the acquisition
of nCHIP, Inc. ("nCHIP") in January 1995 which was accounted for as a pooling of
interest.
FINANCIAL STATEMENT PREPARED IN ACCORDANCE WITH ACCOUNTING PRINCIPLES
ACCEPTED IN SINGAPORE
A separate financial statement for the same period has been prepared in
accordance with accounting principles accepted in Singapore.
3. BANK BORROWINGS
LINE OF CREDIT
Three of the Company's subsidiaries have obtained from several banks working
capital lines of credit, totalling approximately US$48 million, representing
overdraft facilities, bridging loan, short term cash advances, letters of credit
and letters of guarantee and trust receipts. Interest on borrowings is charged
within the range 5.75% to 7.125% per annum.
The lines of credits are collateralized by:
(a) negative pledge on assets of all the group entities;
(b) corporate guarantees from the Company and its subsidiaries;
These lines of credits require that the Company maintains certain
financial ratios and other covenants. As at March 31, 1996, the Company was in
compliance with its covenants.
As of March 31, 1996, the Company had utilized the following credit
facilities under the above lines of credit (in thousands):
<TABLE>
<S> <C>
Short term cash advances $ 14,379
Letters of credits and guarantees $ 1,003
========
</TABLE>
The remaining unused portion of lines of credit total $32.5 million
The weighted average interest rates on borrowings are as follows:
<TABLE>
<CAPTION>
March 31, 1995 1996
- -----------------------------------------------------
<S> <C> <C>
Interest on borrowings 6.438% 6.41%
==============
</TABLE>
4. LONG TERM DEBT
Long-term debt consisted of the following at March 31 1996.
<TABLE>
<CAPTION>
1995 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Term loan at 4.5% $-- $ 333
Mortgage loans at 10.5% -- 2,244
Other loans at 8% 9 1,050
Purchase obligation earnout -- 3,125
-----------------
9 6,752
Less: current portion (9) (4,198)
-----------------
$-- $ 2,554
=================
</TABLE>
Maturities of long-term debt for the five years succeeding March 31,
1996 are $4,198,000 by March 31, 1997, $740,000 by March 31, 1998, $645,000 by
March 31, 1999, $358,000 by March 31, 2000 and $358,000 by March 31, 2001.
The purchase obligation earnout is contingent upon Astron Group Limited
meeting certain pre-tax profit for the calender year 1996.
5. LEASE COMMITMENTS
CAPITAL LEASE
Following is a schedule by fiscal year, of future minimum lease payments under
capital lease obligations for certain machinery and equipment, together with the
present value of the net minimum lease payments (in thousands) :
<TABLE>
<CAPTION>
Fiscal Years Ending March 31,
<S> <C>
1997 $ 7,960
1998 5,987
1999 3,411
2000 1,472
2001 503
Thereafter --
--------
Total installment payments 19,333
Amount representing interest (2,477)
--------
Present value of net installment payments 16,856
Less: current portion 6,736
--------
Long-term portion of capital lease $ 10,120
========
</TABLE>
Items costing $28,387,304 (1995: $15,993,603) with accumulated
amortization $8,780,878 (1995: $4,168,453) purchased under capital leases have
been included in machinery and equipment as of March 31, 1996. Lease
amortization is included in depreciation expense.
OPERATING LEASES
The Company leases some of its facilities under operating leases. Future minimum
lease payments under operating leases with a term of more than one year are as
follows (in thousands):
<TABLE>
<CAPTION>
Fiscal Years Ending March 31,
<S> <C>
1997 $2,177
1998 1,782
1999 1,530
2000 1,147
2001 793
Thereafter 1,890
------
$9,319
======
</TABLE>
Flextronics International Ltd.
20
<PAGE> 80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The facilities lease of one of the subsidiaries provides for escalating
rental payments over the lease period. Rent expense is being recognized on a
straight-line basis over the term of the lease period.
Total operating lease expense for the Company was $1,263,019,
$1,956,733 and $2,211,077 for the years ended March 31, 1994, 1995 and 1996
respectively.
6. CAPITAL COMMITMENTS
One of the subsidiaries, Flextronics (Malaysia) Sdn. Bhd. has contracted to
purchase $457,714 of fixed assets as of March 31, 1996. These fixed assets have
not been delivered and are therefore not provided for in the accounts as of
March 31, 1996.
7. INCOME TAXES
The domestic and foreign components of income (loss) before taxes are as
follows:
<TABLE>
<CAPTION>
March 31,
(in thousands) 1994 1995 1996
- -------------------------------------------------------
<S> <C> <C> <C>
Singapore $ (412) $(1,529) $(21,917)
Foreign 2,801 9,148 8,296
--------------------------
$2,389 $ 7,619 $(13,621)
==========================
</TABLE>
Income tax expense consists of the following :
<TABLE>
<CAPTION>
March 31,
(in thousands) 1994 1995 1996
- ------------------------------------------------------
<S> <C> <C> <C>
Current:
Singapore $ 226 $ 366 $ 1,441
Foreign 89 860 2,266
-------------------------
315 1,226 3,707
-------------------------
Deferred:
Singapore 339 237 74
Foreign -- -- 10
-------------------------
339 237 84
-------------------------
$ 654 $ 1,463 $ 3,791
=========================
</TABLE>
Total income tax expense differs from the amount computed by applying
the Singapore statutory income tax rate of 26% (1995 and 1994: 27%) to income
before taxes as follows :
<TABLE>
<CAPTION>
March 31,
(in thousands) 1994 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed expected income taxes $ 645 $ 2,057 $(3,541)
Effect of Singapore income tax
incentives (278) -- (82)
Effect of losses from non-incentive
Singapore operations 255 367 8,472
Effect of foreign operations (667) (1,609) (1,785)
Non-deductible items:
Amortization of goodwill
and intangibles 113 205 270
Loss on sale of investments -- -- 69
Joint venture losses -- 216 --
Others 29 227 388
-------------------------------
97 1,463 3,791
Cumulative effect of March 31, 1993
of change from deferral method to
liability method 557 -- --
-------------------------------
$ 654 $ 1,463 $ 3,791
===============================
</TABLE>
The components of deferred income taxes are as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1995 1996
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Fixed assets $ 1,466 $ 1,365
Others 486 193
----------------------
1,952 1,558
----------------------
Deferred tax assets
Provision for stock obsolescence (249) (677)
Provision for doubtful debts (180) (343)
Net operating losses carry forwards (11,032) (11,020)
Unabsorbed capital allowances
carried forwards (731) (438)
Investment allowance (84) --
Others (118) (699)
----------------------
(12,394) (13,177)
Valuation allowance 11,132 12,615
----------------------
Net deferred tax liability $ 690 $ 996
======================
</TABLE>
The net deferred tax liability is classified as follows:
<TABLE>
<S> <C> <C>
Non-current liability $ 994 $ 1,256
Current asset (220) (260)
Non-current asset (84) --
----------------------
$ 690 $ 996
======================
</TABLE>
The Company has been granted the following tax incentives:
(i) Investment allowance on approved fixed capital expenditure incurred
within 5 years after August 1, 1990 subject to a maximum of $2,700,000 for its
Singapore operations was granted by the Economic Development Board of Singapore.
This investment allowance has been utilized by the Company to reduce taxable
income of its Singapore subsidiary since 1991. This allowance is however fully
utilized at the end of the year.
(ii) Pioneer status granted to one of its Malaysian subsidiary for a
period of 5 years under the Promotion of Investment Act, 1986. This pioneer
incentive provides a tax exemption on manufacturing income of this subsidiary.
(iii) Product Export Enterprise incentive for a lower rate for its
China operations. The Company's operations in China is located in a "Special
Economic Zone" and is an approved "Product Export Enterprise" which qualifies
for a special corporate income tax rate of 10%. This special tax rate is subject
to the Company exporting more than 70% of its total value of products
manufactured in China. The Company's status as a Product Export Enterprise is
reviewed annually by the Chinese government authorities.
A portion of the Company's sales are carried out by its subsidiary in
Labuan, Malaysia where the Company has opted to pay the Labuan tax authorities a
fixed amount of US$8,000 tax each year in accordance with the Labuan tax
legislation. Also a portion of the Company's sales are carried out by its
subsidiary, an offshore ordinary company, in Mauritius where the tax rate is at
0% for such companies.
8. SHAREHOLDERS' EQUITY
EXERCISE OF OPTIONS
During the year, certain employees exercised their options to purchase 304,201
Ordinary Shares at an exercise price of US$0.77 to US$14.50 per share.
ACQUISITION OF FLEXTRONICS INTERNATIONAL (UK) LIMITED ("FILUK)
(FORMERLY KNOWN AS ASSEMBLY & AUTOMATION (ELECTRONICS) LIMITED)
On April 12, 1995, the Company acquired all the outstanding stock of
FILUK in exchange for $2,878,860 in cash and 66,908 Ordinary Shares of the
Company, valued at $14.019 per share.
ACQUISITION OF ASTRON GROUP LIMITED ("ASTRON")
On February 2, 1996, the Company acquired all the
Flextronics International Ltd.
21
<PAGE> 81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
outstanding stock of Astron in exchange for $13,440,605 in cash; 238,684
Ordinary Shares of the Company, valued at $27.262 per share; issuance of a $10
million promissory note due one year after acquisition date; issuance of a $5
million promissory note due two years after acquisition date and the issuance of
$10 million of Ordinary Shares of the capital of the Company on June 30, 1998.
The promissory notes shall bear interest at the rate of 8% per annum.
FOREIGN CURRENCY PAYMENTS IN THE COMPANY'S SUBSIDIARIES OPERATING IN
THE PEOPLE'S REPUBLIC OF CHINA
The Company's subsidiaries operating in the People's Republic of China
are required to obtain approval from the relevant authorities when making
foreign currency payments.
9. SHARE OPTION PLANS
In July 1993, the Company adopted an Executives' Share Option Scheme ("SOS") and
an Executives' Incentive Share Scheme ("ISS") for selected management employees
of the Company. The Company granted stock options for 344,520 Ordinary Shares
exercisable at $2.92 per share (fair market value at date of the grant) under
the SOS and stock options for 54,618 Ordinary Shares at S$0.01 per share (fair
market value at date of grant was $2.92 per share) under the ISS. In February
1994, 53,748 Ordinary Shares were issued due to the exercise of the options
under ISS. During fiscal 1994, the Company amortized the full compensation
expense of $159,303. In March 1994, 53,748 Ordinary Shares were issued due to
the exercise of the options granted under ISS.
On December 1, 1993, the Company adopted the 1993 Share Option Plan
(the "Plan") that provides for the grant of incentive stock options, automatic
option grants and non-statutory stock options to employees and other qualified
individuals to purchase Ordinary Shares of the Company. At March 31, 1995, the
Company had reserved 900,000 Ordinary Shares for issuance under the Plan. In
August 1995 the Company's 1993 Share Option Plan was amended to reserve an
additional 600,000 Ordinary Shares for issuance.
In January 1995, the Company acquired nCHIP and thereby assumed the
existing nCHIP stock option plan and the employee stock options outstanding
thereunder. The outstanding nCHIP employee stock options were converted into
options to purchase approximately 345,389 of the Company's Ordinary Shares.
As at March 31,1996, options to purchase 1,327,000 Ordinary Shares at a
weighted average exercise price of $12.63 per share were outstanding under the
share option plans. The following table presents the activity for options:
<TABLE>
<CAPTION>
Options outstanding
----------------------------------------------
Options
available for
grant Shares Price per share
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at March 31, 1994 649,872 729,180 S$0.01 - US$6.67
nCHIP options converted
to Flex options 345,389 -- US$0.77 - US$4.74
Options granted (508,501) 508,501 US$0.77 - US$16.75
Options exercised -- (143,699) US$2.92 - US$4.33
Options cancelled 33,418 (33,418) US$2.92 - US$10.50
-----------------------------------------
Balance at March 31, 1995 520,178 1,060,564 US$2.92 - US$16.75
Increase in options available
for grant 600,000 -- S$0.01 - US$35.75
Options granted (641,783) 641,783 US$14.75 - US$35.75
Options exercised -- (304,201) US$0.77 - US$14.50
Options cancelled 71,146 (71,146) US$0.77 - US$24.00
-----------------------------------------
Balance at March 31, 1996 549,541 1,327,000
===================
</TABLE>
10. PROVISION FOR PLANT CLOSURE
The provision for plant closure of $2,454,000 relates to the downsizing of the
Malaysia and Shekou, China manufacturing operations. The provision includes $1
million provision for inventory exposure and $200,000 provision for doubtful
debts related to one specific project in Malaysia. An amount of $1,254,000
associated with certain obsolete equipment at the Company's facilities in
Malaysia and Shekou, China has been written off.
11. EXTRAORDINARY ITEM
In July 1993, the Company recognized $416,000 of extraordinary gain in
connection with the forgiveness of accrued interest on a subordinated note.
12. RELATED PARTY TRANSACTIONS
For the year ended March 31, 1996, the Company had net sales of $2,132,972 to
Metcal, Inc., a precision heating instrument company. Prior to becoming the
Company's Chief Officer in January 1994, Michael E. Marks was the President and
Chief Executive Officer of Metcal, Inc.. Michael E. Marks remained as a director
of Metcal, Inc. during the year ended March 31, 1996.
For the year ended March 31, 1995, the Company had net sales of
$989,220 to Metcal, Inc..
Following the acquisition of Astron, its Managing Director, Stephen JL
Rees, was made a director of the Company on April 15, 1996. At the date of the
Astron acquisition a loan of $2,908,000 to Mayfield International Limited
(`Mayfield'), a company in which Stephen JL Rees has a beneficial interest, was
outstanding. At March 31, 1996 the loan balance amounted to $2,085,082. The loan
is secured by a corporate guarantee from Mayfield's holding company and it bears
interest at 7.15% per annum, earning $26,911 in the period. Astron has also
rented an office from Mayfield, and rentals charged to Astron during the period
amounted to $34,669.
In May 1993, Flextronics (Malaysia) Sdn. Bhd. sold plant and machinery
to FlexTracker Sdn. Bhd. valued at $2,033,315. In December 1993, Flextronics
(Malaysia) Sdn. Bhd. repurchased a portion of such plant and machinery from
FlexTracker Sdn. Bhd. worth $251,654. The sale and purchase of plant and
machinery represent the net book value recorded in the parties' books at the
date of transfer. During the year ended March 1994, Flextronics (Singapore) Pte.
Ltd. purchased $8,692,917 worth of materials on behalf of FlexTracker Sdn. Bhd.
The transfer of these materials to FlexTracker Sdn. Bhd. was at original cost of
the materials.
13. MERGERS, ACQUISITIONS AND STRATEGIC INVESTMENTS
CURRENT YEAR
On April 12, 1995, the Company acquired all of the issued share capital of
Assembly & Automation (Electronics) Limited, a private limited company
incorporated in the UK that provides contract manufacture of electronics and
telecommunications equipment, for a total consideration of $4.1 million by way
of cash and the issuance of 66,908 Ordinary Shares. The transaction has been
accounted for under the purchase method, and accordingly, the purchase price has
been allocated to the assets and liabilities assumed based upon their estimated
fair market values at the date of acquisition. The excess of the purchase price
over the fair market value of the net tangible assets acquired aggregated
approximately $4.6 million of which $237,000 was allocated to intangibles which
are being amortized on a straight line basis over their estimated useful life of
three years.
Flextronics International Ltd.
22
<PAGE> 82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Goodwill is amortized over twenty years.
On February 2, 1996, the Company acquired all of the issued share
capital of Astron Group Limited, a private limited company incorporated in the
Hong Kong who is a manufacturer of circuit boards used in electronics and
telecommunications, for a consideration of $45.6 million by way of cash;
issuance of 238,864 Ordinary Shares and $10 million of Ordinary Shares of the
Company on June 30, 1998; and the issuance of promissory notes bearing interest
at 8%. The Company will pay an earnout of up to $12.5 million contingent upon
Astron meeting certain pre-tax profit for calendar year 1996, and, in addition,
to the $45.6 million the Company has included $3.125 million of the earnout as
part of the purchase consideration. The transaction has been accounted for under
the purchase method, and accordingly, the purchase price has been allocated to
the assets and liabilities assumed based upon their estimated fair market values
at the date of acquisition. The valuation of Astron's In-process research &
development was determined by an independent corporate valuation firm to be
between $31 million to 37 million, and the Company has written off $31.6 million
in the consolidated financial statements this year. An amount of $250,000 was
allocated to intangibles which are being amortized on a straight line basis over
their estimated useful life of three years.
The Company has entered into consulting agreements with the former
Chairman of Astron, which provide for an annual fee, plus a $15 million payment
to be made and expensed on June 30, 1998 subject to certain terms and conditions
to be met, which include continuation of employment and non-competition clauses.
The consolidated financial statements contain the results of the
acquired companies from the date of acquisition.
The following unaudited proforma information of the Company reflects
the results of operations for the year ended March 31, 1995 and 1996 as if the
acquisitions of Assembly & Automation (Electronics) Limited and Astron Group
Limited had occurred as of April 1, 1994 and after giving effect to certain
adjustments including amortizing of intangibles and goodwill. The unaudited
proforma information is based on acquired entities' results of operations for
the years ended December 31, 1994 and 1995 as the fiscal year end of these
entities and the rest of the group are non co-terminus. These proforma results
have been prepared for comparative purposes only and do not purport to be
indicative of what operating results would have been had the acquisitions
actually took place at April 1, 1994 or of operating results which may occur in
the future.
<TABLE>
<CAPTION>
(in thousands, except per share data unaudited)
Year ended March 31, 1995 1996
- -----------------------------------------------------
<S> <C> <C>
Net Sales $273,872 $466,039
Net income/(loss) (28,017) 13,413
Net income/(loss) per share (2.26) 1.00
</TABLE>
PREVIOUS YEARS
In January 1995, the Company acquired nCHIP by the issuance of 2,104,602
ordinary shares of S$0.01 par value each, in exchange for all of the outstanding
capital of nCHIP. In addition, outstanding nCHIP employee stock options were
converted into options to purchase approximately 345,389 of the Company's
ordinary shares. The transaction was accounted for as a pooling of interests and
therefore, all prior period financial statements presented have been restated as
if the acquisition took place at the beginning of such periods.
nCHIP has a calendar year end and, accordingly, the nCHIP statement of
income for the year ended December 31, 1993 have been combined with the
Company's statement of income for the fiscal years ended March 1994. Effective
April 1, 1994 nCHIP's fiscal year end has been changed from December 31 to March
31 to conform to the Company's fiscal year-end. Accordingly, nCHIP's operations
for the three months ended March 31, 1994 including net sales of $ 2,302,218 and
net loss of $ 595,868 have been excluded from consolidated results and have been
reported as an adjustment to the April 1, 1994 consolidated retained earnings.
Separate results of operations for the period prior to the acquisition
are as follows:
<TABLE>
<CAPTION>
Unaudited
Fiscal year nine months
ended ended
March 31 December 31
(in thousands) 1994 1994
- -----------------------------------------------------
<S> <C> <C>
Net sales
Company $ 122,948 $ 163,249
-------------------------
nCHIP 8,397 7,623
=========================
Combined $ 131,345 $ 170,872
Net income
Company $ 2,896 $ 7,626
-------------------------
nCHIP (745) (3,400)
=========================
Combined $ 2,151 $ 4,226
Other changes in
shareholders' equity
Company $ 50,098 $ (144)
nCHIP 9 5,287
-------------------------
Combined $ 50,107 $ 5,143
=========================
</TABLE>
As of December 20, 1994, the Company had a 49% interest in FlexTracker
and accounted for this investment using the equity method. On December 30, 1994,
the Company acquired the net assets (except the $1.0 million loan made by the
joint venture partner, HTS, to FlexTracker) for approximately $3.3 million.
On March 1, 1994, the Company acquired all of the outstanding stock of
Relevant, a company that provides high value-added, high quality, just-in-time
manufacturing services to original equipment manufacturers in the computer and
electronics industry, for approximately $4.0 million. The transaction has been
accounted for under the purchase method, and accordingly, the purchase price has
been allocated to the assets acquired and liabilities assumed based upon their
estimated fair market values at the date of acquisition. Such allocation has
been based on the valuation by an independent corporate valuation firm. The
excess of the purchase price over the fair market value of the net tangible
assets acquired aggregated approximately $2.4 million and are being amortized on
a straight-line basis over their estimated useful life of twenty-five years.
The operating results of Relevant are included in the Company's
consolidated results of operations from the date of acquisition.
The following unaudited pro forma information of the Company reflects
the results of operations for the years ended March 31, 1994 and 1995 as if the
acquisitions of nCHIP, the net assets and business of Flextracker and Relevant
had occured as of April 1, 1993 and after giving effect to certain adjustments
including amortization of intangibles and goodwill. The unaudited pro forma
information is based on certain acquired entities' results of operations for the
years ended December 31, 1993 and 1994 as the fiscal year end of these entities
and the rest of the group are not co-terminus. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
what operating results would have been had the acquisition actually took place
at April 1, 1993 or of operating results which may occur in the future.
<TABLE>
<CAPTION>
(in thousands, except per share data unaudited)
Year ended March 31, 1994 1995
- -----------------------------------------------------------
<S> <C> <C>
Net Sales $ 155,349 $ 255,733
Net income before Extraordinary Gain 92 4,301
Net income after Extraordinary Gain 508 4,301
Net income per share 0.07 0.36
</TABLE>
Flextronics International Ltd.
23
<PAGE> 83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. SEGMENT REPORTING
The Company operates in one primary business segment - providing sophisticated
electronics assembly and turnkey manufacturing services to a select group of
original equipment manufacturers engaged in the computer, medical, consumer
electronics and communications industries. Sales to major customers who
accounted for more than 10% of net sales were as follows:
<TABLE>
<CAPTION>
March 31, 1994 1995 1996
- -----------------------------------------------------
<S> <C> <C> <C>
CUSTOMER
Visioneer 0.44% 1.70% 13.14%
Lifescan 22.8% 20.1% 14.10%
IBM 14.4% 7.7% 2.80%
Global Village -- 4.50% 10.50%
</TABLE>
Sales for similar classes of products within the Company's business
segment is presented below (in thousands):
<TABLE>
<CAPTION>
March 31,
(in thousands) 1994 1995 1996
- --------------------------------------------------------------------------------
PRODUCT TYPE
<S> <C> <C> <C>
Medical $ 30,076 $ 49,152 $ 78,322
Computer, computer peripherals
& telecommunication 64,865 120,818 285,881
Industrial -- -- 9,664
Consumer products 15,792 47,515 23,858
MCMs 8,397 11,847 19,817
Disk drive/tape drive 4,331 -- --
Others 7,884 8,054 30,804
------------------------------------
$131,345 $237,386 $448,346
====================================
</TABLE>
A summary of the Company's operations by geographical area for the
three years ended March 31, 1994, 1995 and 1996 was as follows (in thousands):
<TABLE>
<CAPTION>
March 31,
(in thousands) 1994 1995 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales:
Singapore:
Unaffiliated customers
Domestic $ 29,151 $ 3,596 $ 653
Export -- 7,358 9,277
Intercompany 32,849 67,572 77,899
---------------------------------------
62,000 78,526 87,829
Hong Kong/China and Malaysia:
Unaffiliated customers
Domestic 6,452 17,757 11,838
Export 83,668 158,169 204,850
Intercompany 21,415 29,356 60,780
---------------------------------------
111,535 205,282 277,468
USA/UK:
Unaffiliated customers
Domestic 12,074 50,506 207,961
Export -- -- 13,767
Intercompany -- -- 27
---------------------------------------
12,074 50,506 221,755
Eliminations (54,264) (96,928) (138,706)
---------------------------------------
$ 131,345 $ 237,386 $ 448,346
=======================================
Income (loss) from operations:
Singapore $ 553 $ 90 $ (27,674)
Hong Kong/China and
Malaysia 2,913 11,392 12,843
USA/UK 369 (1,275) 3,056
---------------------------------------
$ 3,835 $ 10,207 $ (11,775)
=======================================
Identifiable assets:
Singapore $ 46,115 $ 23,426 $ 31,998
Hong Kong/China and
Malaysia 49,956 66,315 97,977
USA/UK 7,058 26,376 84,613
---------------------------------------
$ 103,129 $ 116,117 $ 214,588
=======================================
</TABLE>
Geographic revenue transfers are based on selling prices to
unaffiliated companies, less discounts. Income (loss) from operations is net
sales less operating expenses, goodwill amortization and provision for plant
closings, but prior to interest or other expenses and income taxes.
The Company's subsidiaries, with the exception of Astron Group Limited,
are interdependent and are not managed for stand alone results. Certain
operational functions for the entire Company, such as marketing and
administration, may be carried out by a subsidiary in one country. In addition,
the Company may from time to time shift responsibilities from a subsidiary in
one country to a subsidiary in another country, thereby changing the operating
results of the impacted subsidiaries but not the Company as a whole. For these
reasons, the Company believes that changes in results of operations in the
individual countries in which it operates are not necessarily reflective of
material changes in the Company's overall results.
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders Flextronics International Ltd.
We have audited the accompanying consolidated balance sheets of Flextronics
International Ltd., as of March 31, 1995 and 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended March 31, 1996. 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 U.S. Generally Accepted
Auditing Standards. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Flextronics International Ltd. at March 31, 1995 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended March 31, 1996, in conformity with U.S. Generally Accepted
Accounting Principles.
ERNST & YOUNG
Singapore
May 13, 1996
Flextronics International Ltd.
24
<PAGE> 84
CORPORATE DIRECTORY
OFFICERS
Michael E. Marks
Chairman of the Board and
Chief Executive Officer
Tsui Sung Lam
President, Chief Operating Officer
and Director
Dennis P. Stradford
Senior Vice President
Goh Chan Peng
Chief Financial Officer
Hans D. Nilsson
Managing Director, Europe
Teo Buck Song
Vice President, Purchasing
Michael McNamara
Vice President, Flextronics International
and President, U.S. Operations
Bruce McWilliams
Vice President, Flextronics International
and President of nCHIP
Stephen Rees
Chairman, Astron Group Ltd.
[PHOTO]
(Clockwise, back to front:) Dennis Stradford,
Ash Bhardwaj, Stephen Rees, S.L. Tsul, B.S.
Teo, C.P. Goh, Michael Marks, Michael McNamara,
Hans Nilsson, Bruce McWilliams.
DIRECTORS
Robert R.B. Dykes
Bernard J. Lacroutte
Tsui Sung Lam
Michael E. Marks
Michael Moritz
Stephen J.L. Rees
Andrew W. Russell
Richard L. Sharp
WESTERN HEMISPHERE HEADQUARTERS
Flextronics International Ltd.
2241 Lundy Avenue
San Jose, CA 95131
U.S.A.
Tel: +1.408.428.1300
Fax: +1.408.428.0420
EASTERN HEMISHPERE HEADQUATERS
Flextronics International Ltd.
514 Chai Chee Lane
#04-13
Bedok Industrial Estate
Singapore 469029
Tel: +65.449.5255
Fax: +65.448.6040
WORLDWIDE FACILITIES
Singapore
Doumen, People's Republic of China
Xixiang, People's Republic of China
Senai, Johore, Malyasia
Kwai Chung, Hong Kong
San Jose, California, U.S.A.
Westford, Massachusetts, U.S.A.
Richardson, Texas, U.S.A.
Wales, United Kingdom
INVESTOR RELATIONS
For shareholder or investor related inquiries contact:
Investor Relations
Flextronics International
2241 Lundy Avenue
San Jose, CA 95131
U.S.A.
Tel: +1.408.383.7722
Fax: +1.408.526.9215
TRANSFER AGENT AND REGISTRAR
For questions regarding misplaced share certificates, changes of address or the
consolidation of accounts, please contact the Company's transfer agent:
The First National Bank of Boston
435 Tasso Street
Suite 250
Palo Alto, CA 94301
U.S.A.
Tel: +1.415.853.1483
LEGAL COUNSEL
Brobeck, Phleger & Harrison LLP
San Francisco, California, U.S.A.
INDEPENDENT AUDITORS
Ernst & Young, Singapore
STOCK LISTING
The Company's Ordinary Shares are traded over-the-counter on the Nasdaq National
Market System under the symbol FLEXF.
================================================================================
ANNUAL MEETING
The annual meeting of the shareholders will be held at 9:00 A.M. on August 15,
1996 at the Sheraton San Jose Hotel, 1810 Barber Lane, Milpitas, California
95035 U.S.A. Tel: +1.408.943.0600
[LOGO] Printed on recycled paper.
(C)1996 Flextronics International Ltd.
Flextronics International Ltd. All Rights Reserved.
<PAGE> 85
[FLEXTRONICS INTERNATIONAL LOGO]
FLEXTRONICS
INTERNATIONAL
2241 Lundy Avenue
San Jose, CA 95131 U.S.A.
www.flextronics.com
<PAGE> 86
APPENDIX
ANNUAL REPORT
FLEXTRONICS EDGAR DESCRIPTIONS
1. Cover Page
[photograph of selected items the Company manufactures for its clients]
2. Page -- Shareholder letter
[photograph of Chief Executive Officer Michael E. Marks]
3. Page 1
[graphical charts depicting the Company's revenue, income and earnings
per share for fiscal years 1994, 1995 and 1996]
4. Page 2
[graphical chart depicting sample manufacturing programs the Company
offers]
5. Page 3
[photograph of selected Thermoscan, Inc. products and components]
6. Page 4
[graphical chart depicting a spectrum of manufacturing technologies the
Company offers]
7. Page 5
[photograph of certain Palm Computing products and components]
8. Page 6
[graphical chart depicting production and distribution strategies]
9. Page 7
[photograph of certain Microsoft Corporation products and components]
10. Page 8
[map illustrating Plextronics' design and manufacturing facilities]
11. Page 25
[photographs of Messers. Stradford, Bhardwaj, Rees, Goh, Marks, Tsui,
Nilsson, Teo, McNamara, McWilliams.]
