<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 19, 1997
REGISTRATION NO. 333-41293
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FLEXTRONICS INTERNATIONAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
SINGAPORE 0-23354 NOT APPLICABLE
STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION NO.)
</TABLE>
514 CHAI CHEE LANE #04-13
BEDOK INDUSTRIAL ESTATE
SINGAPORE 469029
(65) 449-5255
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL E. MARKS
CHIEF EXECUTIVE OFFICER
FLEXTRONICS INTERNATIONAL LTD.
514 CHAI CHEE LANE #04-13
BEDOK INDUSTRIAL ESTATE
SINGAPORE 469029
(65) 449-5255
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
GORDON K. DAVIDSON, ESQ.
DAVID K. MICHAELS, ESQ.
CARLTON X. OSBORNE, ESQ.
FENWICK & WEST LLP
TWO PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94306
(415) 494-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after this Registration Statements becomes effective.
If the only securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any state.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED DECEMBER 19, 1997
$150,000,000
OFFER FOR ALL OUTSTANDING
8 3/4% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
8 3/4% OF SERIES B SENIOR SUBORDINATED NOTES DUE 2007
OF
FLEXTRONICS INTERNATIONAL LTD.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON , 1997, UNLESS EXTENDED.
Flextronics International Ltd., a Singapore company (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Exchange Offer"), to exchange an aggregate principal amount of up to
$150,000,000 of 8 3/4% Series B Senior Subordinated Notes due 2007 of the
Company (the "New Notes") for a like principal amount of the issued and
outstanding 8 3/4% Senior Subordinated Notes due 2007 of the Company (the "Old
Notes" and, together with the New Notes, the "Notes") with the holders thereof.
The terms of the New Notes are identical in all respects to the terms of the Old
Notes, except that the terms of the New Notes do not include certain transfer
restrictions and registration rights included in the terms of the Old Notes.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from October 15, 1997. Accordingly, if the relevant record date for
interest payment occurs after the consummation of the Exchange Offer, registered
holders of New Notes on such record date will receive interest accruing from the
most recent date to which interest has been paid or, if no interest has been
paid, from October 15, 1997. If, however, the relevant record date for interest
payment occurs prior to the completion of the Exchange Offer, registered holders
of Old Notes on such record date will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from October 15, 1997. Old Notes accepted for exchange will cease to accrue
interest from and after the date of completion of the Exchange Offer, except as
set forth in the immediately preceding sentence. Holders of Old Notes whose Old
Notes are accepted for exchange will not receive any payment in respect of
interest on such Old Notes otherwise payable on any interest payment date, the
record date for which occurs on or after consummation of the Exchange Offer.
The Old Notes were issued on October 15, 1997 (the "Old Note Offering") in a
transaction not registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption provided in Section 4(2) of
the Securities Act. Accordingly, the Old Notes may not be reoffered, resold,
pledged, hypothecated or otherwise transferred in the United States unless so
registered or unless an applicable exemption from the registration requirements
of the Securities Act is available. The Old Notes are, and the New Notes will
be, general unsecured obligations of the Company, subordinated in right of
payment to all existing and future Senior Indebtedness (as defined herein),
including borrowings under the New Credit Facility (as defined herein). The
Indenture (as defined herein) permits the Company to incur additional
indebtedness, including Senior Indebtedness, subject to certain limitations. As
of September 30, 1997, on a pro forma basis, the Company had approximately
$150.0 million of Senior Debt outstanding and, through its Subsidiaries, had
additional liabilities (including trade payables and capital lease obligations)
aggregating approximately $148.5 million, which would rank senior, or
effectively senior, as the case may be, in right of payment to the Notes.
The New Notes are being offered hereby to satisfy certain obligations of the
Company contained in the Registration Rights Agreement, dated October 9, 1997
(the "Registration Rights Agreement"), among the Company and the initial
purchasers of the Old Notes. The Company is making the Exchange Offer in
reliance upon interpretations of the staff of the Securities and Exchange
Commission (the "Commission") by which the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that the New Notes are acquired in the ordinary
course of the holder's business and the holder has no arrangement or
understanding with any person to participate in the distribution of the New
Notes. If any holder of Old Notes is an affiliate of the Company, or is engaged
in or intends to engage in or has any arrangement with any person to participate
in the distribution of the New Notes to be acquired pursuant to the Exchange
Offer, the holder (i) could not rely on the applicable interpretations of the
staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of the New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where the Old Notes
were acquired by the broker-dealer as a result of market-making activities or
other trading activities.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of Old
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date (as defined herein). If the Company terminates the Exchange
Offer and does not accept for exchange any Old Notes, the Company will promptly
return the Old Notes to the holders thereof. See "The Exchange Offer." The Old
Notes are eligible for trading in the Private Offerings, Resales and Trading
through Automatic Linkages market (the "PORTAL Market") of the National
Association of Securities Dealers, Inc. Prior to this Exchange Offer, there has
been no public market for the New Notes. If a market for the New Notes develops,
the New Notes could trade at a discount from their principal amount. The Company
does not intend to list the New Notes on any securities exchange or to seek
approval for quotation on any automated quotation system. There is no assurance
that an active public market for the New Notes will develop.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NEW NOTES
OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is , 1997.
<PAGE> 3
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the consolidated financial statements
and notes thereto, appearing elsewhere in this Prospectus. In this Prospectus,
references to "U.S. dollars" and "$" are to United States currency and
references to "Singapore dollars" and "S$" are to Singapore currency.
THE COMPANY
Flextronics International Ltd. ("Flextronics" or the "Company") is a
provider of advanced contract manufacturing services to original equipment
manufacturers ("OEMs") in the communications, computer, consumer electronics and
medical device industries. Flextronics offers a full range of services including
product design, printed circuit board ("PCB") fabrication and assembly,
materials procurement, inventory management, final system assembly and testing,
packaging and distribution. The components, subassemblies and finished products
manufactured by Flextronics incorporate advanced interconnect, miniaturization
and packaging technologies, such as surface mount ("SMT"), chip-on-board
("COB"), ball grid array ("BGA") and miniaturized gold-plated PCB technology.
The Company's strategy is to use its global manufacturing capabilities and
advanced technological expertise to provide its customers with a complete
manufacturing solution, highly responsive and flexible service, accelerated time
to market and reduced production costs. The Company targets leading OEMs, in
growing vertical markets, with which it believes it can establish long-term
relationships, and serves its customers on a global basis from its strategically
located facilities in North America, East Asia and Northern Europe. The
Company's customers include Advanced Fibre Communications, Ascend
Communications, Braun/ThermoScan, Cisco Systems, Diebold, Ericsson, Harris DTS,
Lifescan (a Johnson & Johnson company), Microsoft, Philips and U.S. Robotics.
On March 27, 1997, the Company acquired from Ericsson Business Networks AB
("Ericsson") two manufacturing facilities (the "Karlskrona Facilities") located
in Karlskrona, Sweden and related inventory, equipment and other assets for
approximately $82.4 million in cash. The Karlskrona Facilities include a 220,000
square foot facility and a 110,000 square foot facility, each of which is ISO
9002 certified. The Company is currently utilizing the Karlskrona Facilities to
assemble and test PCBs, network switches, cordless base stations and other
components for business communications systems sold by Ericsson pursuant to a
multi-year purchase agreement (the "Karlskrona Purchase Agreement"). The Company
intends to also use the Karlskrona Facilities to offer advanced contract
manufacturing services to other European OEMs in the telecommunications and
other industries, which the Company believes are beginning to outsource the
manufacture of significant product lines. See "Business -- Recent Acquisitions."
On October 30, 1997 the Company acquired 92% of the outstanding ordinary
shares of Neutronics Electronics Industries Holding AG ("Neutronics"), an
Austrian PCB assembly company with operations in Austria and Hungary, in
exchange for 2,806,000 Ordinary Shares of the Company. Neutronics' subsidiaries
have three manufacturing facilities in Hungary (including a campus in Sarvar)
and one manufacturing facility in Austria. These facilities, which total 718,000
square feet and have a total of approximately 3,500 employees, are engaged
primarily in PCB assembly, as well as related activities such as engineering and
design, and injection molded plastics.
Since 1994, the Company has substantially expanded its manufacturing
capacity, technological capabilities and service offerings, both through
acquisitions and internal growth. In fiscal 1997, in addition to the acquisition
of the Karlstrona Facilities, the Company expanded its advanced PCB design
capabilities by acquiring Fine Line Printed Circuit Design, Inc. ("Fine Line")
for 223,321 Ordinary Shares; expanded its presence in China by investing in FICO
Investment Holding Limited ("FICO"), a producer of injection molded plastics for
Asian electronics companies; opened an additional manufacturing facility in San
Jose, California; closed its plant in Texas; and downsized manufacturing
operations in Singapore. The Company has recently substantially expanded its
manufacturing operations by expanding its integrated campus in Doumen, China,
constructing a new manufacturing campus in Guadalajara, Mexico and adding
facilities in San Jose, California. In fiscal 1998, in addition to the
Neutronics acquisition, the Company acquired DTM Products, Inc., a
Colorado-based producer of injection molded plastics for North American OEMs, in
exchange for 252,469 Ordinary Shares, and Energipilot AB, a Swedish company
principally engaged in providing cables and
2
<PAGE> 4
cable assemblies for Northern European OEMs, in exchange for 229,990 Ordinary
Shares. The Company intends to continue to pursue attractive acquisition
opportunities in the future. See "Risk Factors -- Acquisitions."
THE EXCHANGE OFFER
Securities Offered......... 150,000,000 principal amount of 8 3/4 Series B
Subordinated Notes due 2007. The terms of the New
Notes and the Old Notes are identical in all
respects, except certain transfer restrictions and
registration rights relating to the Old Notes will
not be applicable with respect to the New Notes.
Issuance of Old Notes;
Registration Rights...... The Old Notes were issued on October 15, 1997 to
BancAmerica, Robertson Stephens and BancBoston
Securities Inc. (collectively, the "Initial
Purchasers"), which placed the Old Notes with
"qualified institutional buyers" (as that term is
defined in Rule 144A promulgated under the
Securities Act.) In connection therewith, the
Company executed and delivered for the benefit of
the holders of Old Notes the Registration Rights
Agreement, pursuant to which the Company agreed (i)
to file a registration statement (the "Registration
Statement") no later than 45 days after October 15,
1997 with respect to the Exchange Offer and (ii) to
use its reasonable efforts to cause the
Registration Statement to be declared effective by
the Commission no later than 135 days after October
15, 1997. In certain circumstances, the Company
will be required to file a shelf registration
statement (the "Shelf Registration Statement") to
cover resales of the Old Notes by the holders
thereof. If the Company does not comply with
certain of its obligations under the Registration
Rights Agreement, it will be required to pay
Additional Interest (as defined herein) to holders
of the Old Notes. See "The Exchange
Offer -- Registration Rights; Additional Interest."
Holders of the Old Notes do not have any appraisal
rights in connection with the Exchange Offer.
The Exchange Offer......... The New Notes are being offered in exchange of a
like principal amount of Old Notes. The issuance of
the New Notes is intended to satisfy the
obligations of the Company contained in the
Registration Rights Agreement. Based upon the
position of the staff of the Commission set forth
in no-action letters issued in connection with
other transactions substantially similar to the
Exchange Offer, the Company believes the New Notes
issued pursuant to the Exchange Offer may be
offered for resale, resold and otherwise
transferred by holders thereof (other than (i) any
holder that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act,
(ii) an Initial Purchaser that acquired the Old
Notes directly from the Company solely in order to
resell pursuant to Rule 144A under the Securities
Act or any other available exemption under the
Securities Act or (iii) a broker-dealer that
acquired the Old Notes as a result of market-making
or other trading activities) without further
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that the New Notes are acquired in the
ordinary course of the holder's business and the
holder is not participating and has no arrangement
with any person to participate in a distribution
(within the meaning of the Securities Act) of the
New Notes. Each broker-dealer that receives New
Notes for its
3
<PAGE> 5
own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in
connection with any resale of the New Notes.
Although there has been no indication of any change
in the staff's position, there is no assurance that
the staff of the Commission would make a similar
determination with respect to the resale of the New
Notes. See "Risk Factors."
Procedures for Tendering... Tendering holders of Old Notes must complete and
sign the Letter of Transmittal in accordance with
the instructions contained therein and forward the
same by mail, facsimile or hand delivery, together
with any other required documents, to the Exchange
Agent, either with the Old Notes to be tendered or
in compliance with the specified procedures for
guaranteed delivery of Old Notes. Holders of the
Old Notes desiring to tender the Old Notes in
exchange for New Notes should allow sufficient time
to ensure timely delivery. Certain brokers,
dealers, commercial banks, trust companies and
other nominees may also effect tenders by
book-entry transfer. Holders of Old Notes
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee are
urged to contact such person promptly if they wish
to tender Old Notes pursuant to the Exchange Offer.
Letters of Transmittal and certificates
representing the Old Notes should not be sent to
the Company. These documents should only be sent to
the Exchange Agent. Questions regarding how to
tender and requests for information should also be
directed to the Exchange Agent. See "The Exchange
Offer -- Procedures for Tendering the Old Notes."
Tenders, Expiration Date;
Withdrawal............... The Exchange Offer will expire the earlier of 5:00
p.m., New York City time, on , 1997 or
(ii) the date when all Old Notes have been
tendered, or such later date and time to which it
is extended, provided it may not be extended beyond
, 1997. The Company will accept for
exchange any and all Old Notes that are validly
tendered in the Exchange Offer prior to 5:00 p.m.,
New York City time, on the Expiration Date. The
tender of Old Notes pursuant to the Exchange Offer
may be withdrawn at any time prior to the
Expiration Date. Any Old Note not accepted for
exchange for any reason will be returned without
expense to the tendering holder thereof as promptly
as practicable after the expiration or termination
of the Exchange Offer. See "The Exchange
Offer -- Terms of the Exchange Offer; Period for
Tendering Old Notes" and "-- Withdrawal Rights."
Tax Considerations......... For Singapore and U.S. federal income tax purposes,
the exchange pursuant to the Exchange Offer will
not result in any income, gain or loss to the
holders of Notes or the Company. See "Certain Tax
Considerations."
Use of Proceeds............ There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer.
Appraisal Rights........... Holders of Old Notes will not have dissenters'
rights or appraisal rights in connection with the
Exchange Offer.
Exchange Agent............. State Street Bank and Trust Company of California,
N.A. is serving as Exchange Agent in connection
with the Exchange Offer.
4
<PAGE> 6
CONSEQUENCES OF NOT EXCHANGING THE OLD NOTES
Holders of Old Notes who do not exchange Old Notes for New Notes pursuant
to the Exchange Offer will continue to be subject to the restrictions on
transfer of the Old Notes as set forth in the legend thereon as a consequence of
the issuance of the Old Notes pursuant to exemptions from, or in transactions
not subject to, the registration requirements of the Securities Act and
applicable state securities laws. In general, the Old Notes may not be offered
or sold, unless registered under the Securities Act, except pursuant to an
exemption from, or in a transaction not subject to, the Securities Act and
applicable state securities laws. The Company does not anticipate that it will
register the Old Notes for resale under the Securities Act. See "Risk Factors --
Consequences of Failure to Exchange Old Notes" and "The Exchange
Offer -- Consequences of Failure to Exchange Old Notes."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all respects,
except that the terms of the New Notes do not include certain transfer
restrictions and registration rights relating to the Old Notes.
The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from October 15, 1997. Accordingly, registered Holders of New Notes
on the relevant record date for the first interest payment date following the
completion of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from October 15, 1997. Old Notes accepted for exchange will cease to accrue
interest from and after the date of completion of the Exchange Offer. Holders of
Old Notes whose Old Notes are accepted for exchange will not receive any payment
in respect of interest on the Old Notes otherwise payable on any interest
payment date that occurs on or after completion of the Exchange Offer.
Issuer..................... Flextronics International Ltd., a Singapore
company.
Securities Offered......... $150,000,000 aggregate principal amount of 8 3/4%
Senior Subordinated Notes due 2007.
Maturity Date.............. October 15, 2007.
Interest Payment Dates..... Semiannually on April 15 and October 15, commencing
April 15, 1998.
Ranking.................... The Notes will be unsecured obligations of the
Company and will be subordinated in right of
payment to all existing and future Senior Debt (as
defined) of the Company, including the Company's
obligations under the Credit Facility (as defined)
and effectively subordinated to all indebtedness
and other obligations of the Company's Subsidiaries
(as defined). The Notes will rank pari passu with
any future senior subordinated indebtedness of the
Company and will rank senior to any other
subordinated indebtedness of the Company. As of
June 30, 1997, on a pro forma basis, the Company
had approximately $5.0 million of Senior Debt
outstanding and, through its Subsidiaries, had
additional liabilities (including trade payables
and capital lease obligations) aggregating
approximately $141.0 million, which would rank
senior, or effectively rank senior, as the case may
be, in right of payment to the Notes. See
"Capitalization," "Description of the Credit
Facility" and "Description of the
Notes -- Subordination."
Optional Redemption........ The Notes may be redeemed, in whole or in part, at
any time on or after October 15, 2002 at the option
of the Company, at the redemption prices set forth
herein, plus, in each case, accrued and unpaid
interest to the applicable redemption date. In
addition, at any time prior to October 15, 2000,
the Company may, at its option, redeem up to $52.5
million in aggregate principal amount of the Notes
at a redemption price of
5
<PAGE> 7
108.75% of the principal amount thereof, plus
accrued and unpaid interest thereon to the
applicable redemption date, with the net cash
proceeds of a public or private offering of
Ordinary Shares of the Company (other than the
Equity Offering (as defined below)) (an "Equity
Sale"), provided that at least $97.5 million in
aggregate principal amount of the Notes remain
outstanding immediately after the occurrence of
such redemption. Further, the Notes are subject to
redemption at the option of the Company at a
redemption price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest to
the redemption date, in the event of a Change in
Tax Law (as defined) requiring the imposition of
withholding taxes on any amounts payable under the
Notes. See "Description of the Notes --
Redemption."
Change of Control.......... Upon a Change of Control (as defined), the Company
will be obligated to make an offer to repurchase
all of the outstanding Notes at a price equal to
101% of the principal amount thereof, plus accrued
and unpaid interest to the date of repurchase. See
"Description of the Notes -- Repurchase at the
Option of Holders Upon Change of Control."
Certain Covenants.......... The indenture under which the Notes will be issued
(the "Indenture") will contain certain covenants
that will, among other things, restrict the ability
of the Company and its Subsidiaries (i) to pay
dividends, redeem capital stock or prepay certain
subordinated indebtedness, (ii) to incur
indebtedness or issue preferred stock, (iii) to
grant liens, (iv) to merge, consolidate or transfer
substantially all of their assets, (v) to enter
into certain transactions with Affiliates (as
defined), (vi) to impose restrictions on any
Subsidiary's ability to pay dividends to the
Company, (vii) to enter into certain sale and
leaseback transactions, (viii) to make certain
asset sales and (ix) to permit Subsidiaries to
guarantee Debt. The limitations described above are
subject to certain qualifications and exceptions.
See "Description of the Notes -- Certain
Covenants."
RISK FACTORS
Holders of Old Notes should carefully consider the following risk factors,
as well as all other information set forth in this Prospectus, before tendering
their Old Notes in the Exchange Offer. The risk factors set forth below (other
than "Consequences of Failure to Exchange Old Notes") are generally applicable
to the Old Notes as well as the New Notes.
6
<PAGE> 8
SUMMARY SELECTED FINANCIAL DATA
The following table sets forth summary selected financial data of the
Company as of and for each of six months ended September 30, 1996 and 1997 and
the fiscal years ended March 31, 1994, 1995, 1996 and 1997. The selected
financial data set forth below for the fiscal years ended March 31, 1995, 1996
and 1997 have been derived from consolidated financial statements of the Company
which have been audited by Ernst & Young, independent auditors, whose report
thereon is included elsewhere in this Prospectus. The selected financial data
set forth below for the fiscal year ended March 31, 1994 have been derived from
audited financial statements not included in this Prospectus. The summary
financial data as of September 30, 1997 and for the six months ended September
30, 1996 and 1997 is derived from the unaudited financial statements of the
Company for such periods. See "Management's Discussion and Analysis of Financial
Condition and Result of Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30,
----------------------------------------- -------------------
1994 1995 1996(1) 1997(2) 1996 1997
-------- -------- -------- -------- -------- --------
(RESTATED)(3)
(RESTATED)(3)
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.............................................. $131,345 $237,386 $448,346 $490,585 $240,359 $406,970
Cost of sales.......................................... 117,392 214,865 407,457 440,448 214,350 366,018
-------- -------- -------- -------- -------- --------
Gross profit......................................... 13,953 22,521 40,889 50,137 26,009 40,952
Selling, general and administrative expenses........... 8,667 11,468 18,787 26,765 12,179 20,016
Acquired in-process research and development........... 202 91 29,000 -- -- --
Goodwill amortization.................................. 398 510 739 989 485 970
Intangible assets amortization......................... 21 245 544 1,646 834 778
Provision for plant closings........................... 830 -- 1,254 5,868 -- --
-------- -------- -------- -------- -------- --------
Operating income (loss).............................. 3,835 10,207 (9,435) 14,869 12,511 19,188
Net interest expense................................... (1,778) (774) (2,380) (3,885) (2,127) (7,116)
Merger expenses........................................ -- (816) -- -- -- --
Foreign exchange gain (loss)........................... 402 (303) 872 1,168 218 944
Income (loss) from associated company.................. (70) (729) -- 241 -- 650
Other income (expense)................................. -- 34 (398) (2,718) 355 (176)
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes.................... 2,389 7,619 (11,341) 9,675 10,957 13,490
Provision for income taxes............................. 654 1,463 3,791 2,212 1,622 1,653
Extraordinary gain..................................... 416 -- -- -- -- --
-------- -------- -------- -------- -------- --------
Net income (loss).................................... $ 2,151 $ 6,156 $(15,132) $ 7,463 $ 9,335 $ 11,837
======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(4).............................................. $ 9,688 $ 16,063 $ 31,920 $ 37,431 $ 20,906 $ 31,389
EBITDA margin.......................................... 7.4% 6.8% 7.1% 7.6% 8.7% 7.7%
Capital expenditures................................... $ 5,246 $ 7,536 $ 15,812 $ 26,984 $ 12,511 $ 46,349
Depreciation and amortization.......................... $ 4,621 $ 6,125 $ 10,627 $ 13,575 $ 7,822 $ 11,433
PRO FORMA FINANCIAL RATIOS(5)(6):
Ratio of EBITDA to interest expense.......................................................................... 1.99
Ratio of total debt to EBITDA................................................................................ 5.40
</TABLE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
-----------------------
ACTUAL PRO FORMA(6)
-------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................................................ $(12,847) $165,332
Total assets............................................................................. 426,300 526,860
Long-term debt and capital lease obligations, including current portion.................. 166,644 169,644
Shareholders' equity..................................................................... 96,367 193,927
</TABLE>
7
<PAGE> 9
- ------------------------------
(1) In fiscal 1996, the Company wrote off $29.0 million of in-process research
and development associated with the acquisition of Astron and also recorded
charges totaling $1.3 million for costs associated with the closing of one
of the Company's Malaysian plants and its Shekou, China operations. See
"Risk Factors -- Management of Expansion and Consolidation" and
"-- Acquisitions."
(2) In fiscal 1997, the Company incurred plant closing expenses aggregating $5.9
million in connection with the closing of its manufacturing facility in
Texas, downsizing manufacturing operations in Singapore, and writing off
obsolete equipment and incurring severance obligations at the nCHIP
semiconductor fabrication operations.
(3) The consolidated financial statements of the Company for the fiscal year
ended March 31, 1996 and the six months ended September 30, 1996 have been
restated as a result of changes in the Company's accounting for the
acquisition of Astron. See Note 14 of Notes to Consolidated Financial
Statements and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Recent Changes in Accounting for Astron
Acquisition."
(4) EBITDA represents income before interest expense, income taxes, depreciation
and amortization, and non-recurring and extraordinary items. EBITDA excludes
(i) the merger expenses recorded in fiscal 1995 associated with the
acquisition of nCHIP by the Company, (ii) losses from associated company
recorded in fiscal 1994 and 1995 and the income from associated company
recorded in fiscal 1997, (iii) charges recorded in fiscal 1994 associated
with certain plant closings, (iv) bank consulting fees recorded in fiscal
1997, (vi) a loss on investment in fiscal 1997 due to its permanent
impairment, and (vi) the expenses, charges and write-offs discussed in notes
(1) and (2) above. EBITDA is included herein because management believes
that certain investors will find it to be a useful tool for measuring the
Company's ability to service its debt; however, EBITDA does not represent
cash flow from operations, as defined by GAAP, and should not be considered
as a substitute for net earnings as an indicator of the Company's operating
performance or cash flow as a measure of liquidity.
(5) EBITDA and pro forma interest expense used in the ratio calculations are for
the six months ended September 30, 1997.
(6) Gives pro forma effect to (i) the sale of the Notes, (ii) the sale of
2,185,000 Ordinary Shares pursuant to a public offering which was
consummated on October 8, 1997 (the "Equity Offering") and (iii) the
application of the net proceeds from the sale of the Notes and from the
Equity Offering to repay outstanding loans under the Company's Credit
Facility and for working capital, all as if such transactions had occurred
at September 30, 1997 for purposes of the pro forma balance sheet data and
at October 1, 1996 for purposes of the pro forma financial ratios. See "Use
of Proceeds" and "Capitalization."
8
<PAGE> 10
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the Notes
offered hereby. The discussion in this Prospectus contains certain
forward-looking statements, and the following risk factors should be read as
being applicable to all related forward-looking statements wherever they appear
in this Prospectus. The Company's actual results could differ materially from
those discussed in this Prospectus. Factors that could cause or contribute to
such differences include those discussed below, as well as those discussed
elsewhere herein. See "Disclosure Regarding Forward-Looking Statements."
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Issuance of the New Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent of
the Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Holders of the Old Notes desiring to tender the
Old Notes in exchange for New Notes, therefore, should allow sufficient time to
ensure timely delivery. The Company is under no duty to give notification of
defects or irregularities with respect to tenders of Old Notes for exchange.
Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant
to the Exchange Offer will continue to be subject to the restrictions on
transfer of the Old Notes as set forth in the legend thereon. In general, the
Old Notes may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Company does not
anticipate that it will register the Old Notes under the Securities Act. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered, or tendered but unaccepted, Old Notes could
be adversely affected. See "The Exchange Offer -- Consequences of Failure to
Exchange Old Notes."
Based on interpretations of the staff of the Commission, the Company
believes the New Notes issued pursuant to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by a holder
thereof (other than (i) an "affiliate" of the Company within the meaning of Rule
405 of the Securities Act, (ii) an Initial Purchaser who acquired the Old Notes
directly from the Company solely in order to resell pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act, or
(iii) a broker-dealer who acquired the Old Notes as a result of market-making or
other trading activities) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that the New
Notes are acquired in the ordinary course of the holder's business and that the
holder is not participating, and has no arrangement or understanding with any
person to participate, in a distribution (within the meaning of the Securities
Act) of the New Notes. The Company has not, however, sought its own no-action
letter from the staff of the Commission. Although there has been no indication
of any change in the staff's position, there is no assurance that the staff of
the Commission would make a similar determination with respect to the resale of
the New Notes. Any holder that cannot rely upon these prior staff
interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, unless the sale is made pursuant to an exemption from these
requirements. See "The Exchange Offer -- Consequences of Failure to Exchange Old
Notes."
SIGNIFICANT LEVERAGE; INCURRENCE OF ADDITIONAL SENIOR DEBT
The Company has significant amounts of outstanding indebtedness and
interest cost. The Company's level of indebtedness presents risks to investors,
including the possibility that the Company may be unable to generate cash
sufficient to pay the principal of and interest on the indebtedness when due. At
September 30, 1997, on a pro forma basis after giving effect to the sale of the
Notes and the Equity Offering and the application of the net proceeds therefrom
to reduce indebtedness outstanding under the Credit Facility, the Company had
consolidated indebtedness of approximately $169.6 million (including bank
borrowings, long-term debt and capitalized lease obligations, and excluding $9.0
million of liabilities relating to the Astron acquisition that the Company
intends to repay in the Company's Ordinary Shares) compared to $52.6 million as
at September 30, 1996. The Company's indebtedness at September 30, 1997,
included $111.0 million
9
<PAGE> 11
borrowed on March 27, 1997, and an additional $36.0 million borrowed during the
six months ended September 30, 1997 which substantially increased the Company's
leverage. See "Description of the Credit Facility" and "Description of the
Notes -- Certain Covenants."
The Company anticipates increasing the aggregate principal amount of
revolving credit loans that may be made under the Credit Facility (although no
assurances can be given as to the availability or amount of any such increase).
The Company anticipates that it will from time to time continue to borrow
revolving credit loans under the Credit Facility and such borrowings would
increase the Company's leverage.
The Company's ability to make principal and interest payments on the Notes
will be dependent on the Company's future operating performance, which is itself
dependent on a number of factors, many of which are outside of the Company's
control. These factors include prevailing economic conditions and financial,
competitive, regulatory and other factors affecting the Company's business and
operations, and may be dependent on the availability of borrowings under the
Credit Facility or other borrowings. Although the Company believes, based on
current levels of operations, its cash flow from operations, together with other
sources of liquidity, will be adequate to make required payments of principal
and interest on its debt (including the Notes), whether at or prior to maturity,
finance anticipated capital expenditures and fund working capital requirements,
there is no assurance in this regard. If the Company does not have sufficient
available resources to repay any indebtedness under the Credit Facility (or
other indebtedness the Company may incur) when it becomes due and payable, the
Company may find it necessary to refinance such indebtedness, and there can be
no assurance that refinancing will be available, or available on reasonable
terms.
Additionally, the Company's level of indebtedness could have a material
adverse effect on the Company's future operating performance, including, but not
limited to, the following: (i) a significant portion of the Company's cash flow
from operations will be dedicated to debt service payments, thereby reducing the
funds available to the Company for other purposes; (ii) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions or general corporate purposes or other purposes may
be impaired; (iii) the Company's leverage may place the Company at a competitive
disadvantage; (iv) the Company's leverage may limit its ability to expand and
otherwise meet its growth objectives; and (v) the Company's leverage may hinder
its ability to adjust rapidly to changing market conditions and could make it
more vulnerable in the event of a downturn in general economic conditions or its
business. See "Description of the Notes."
The Company may seek growth through selective acquisitions, including
significant acquisitions. The Company could incur substantial additional
indebtedness in connection with a significant acquisition, in which event the
Company's leverage would increase.
HOLDING COMPANY STRUCTURE
The Company is a holding company with no business operations other than (i)
holding the capital stock of its Subsidiaries and (ii) advancing funds to, and
receiving funds from, its Subsidiaries. In repaying its indebtedness, including
the Notes, the Company must rely on dividends and other payments made to it by
its Subsidiaries.
The holders of the Notes will have no direct claims against the Company's
Subsidiaries. The ability of the Company's Subsidiaries to make payments to the
Company will be affected by the obligations of such Subsidiaries to their
creditors. Claims of holders of indebtedness of the Company, including the
Notes, against the cash flow and assets of the Company's Subsidiaries will be
effectively subordinated to claims of such creditors.
In addition, the rights of the Holders of the Notes to participate in the
assets of any Subsidiary of the Company upon such Subsidiary's liquidation or
recapitalization will be subject to the prior claims of such Subsidiary's
creditors. At September 30, 1997, on a pro forma basis, Subsidiaries of the
Company had liabilities (including trade payables and capital lease obligations)
aggregating approximately $148.5 million. The ability of the Company's
Subsidiaries to make payments to the Company will also be subject to, among
10
<PAGE> 12
other things, applicable state and foreign corporate laws and other laws and
regulations. In order to pay the principal amount at maturity of the Notes, the
Company may be required to adopt one or more alternatives, such as a refinancing
of the Notes.
SUBORDINATION
The Notes will be unsecured obligations of the Company and will be
subordinated in right of payment to all current and future Senior Debt of the
Company including indebtedness under the Credit Facility. The Notes will rank
pari passu with any future senior subordinated indebtedness of the Company and
will rank senior to all other subordinated indebtedness of the Company. As of
September 30, 1997, on a pro forma basis, the Company had outstanding Senior
Debt of approximately $150.0 million and, through its Subsidiaries, had
additional liabilities (including trade payables and capital lease obligations)
aggregating approximately $148.5 million, which would rank senior, or
effectively senior, as the case may be, in right of payment on the Notes.
In addition, under the Credit Facility, subject to compliance with certain
covenants and financial ratios, the Company and its United States Subsidiary may
borrow up to an aggregate of $105.0 million of revolving credit loans. The
Company has guaranteed the obligations of its United States Subsidiary under the
Credit Facility. Borrowings by the Company under the Credit Facility, and
guarantees by the Company of borrowings by its United States Subsidiary will
constitute Senior Debt. The Company anticipates increasing the aggregate
principal amount of revolving credit loans that may be made under the Credit
Facility (although no assurances can be given as to the availability or amount
of any such increase). See "Description of the Credit Facility."
Upon any distribution to creditors of the Company in a total or partial
liquidation, winding up, reorganization or dissolution of the Company or in a
voluntary or involuntary bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property, an assignment for
the benefit of creditors or any marshalling of the Company's assets and
liabilities, the holders of Senior Debt would be entitled to receive payment in
full in cash of all obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Debt) before the Holders of the Notes will be entitled to
receive any payment with respect to the Notes, and until all obligations with
respect to Senior Debt are paid in full in cash, any distribution to which the
Holders of the Notes would be entitled shall be made to the holders of Senior
Debt (except that Holders of the Notes may receive Permitted Junior Securities
and payments made from the trust described under "Description of the
Notes -- Legal Defeasance and Covenant Defeasance").
As a result of the subordination provisions described above, in the event
of the insolvency, liquidation, reorganization or other winding up of the
Company, the lenders under the Credit Facility and other creditors who are
holders of Senior Debt, as well as creditors with secured obligations that are
not defined as Debt under the Indenture, must be paid in full before payment of
amounts due on the Notes. Accordingly, there may be insufficient assets
remaining after such payments to pay amounts due on the Notes. See "Description
of the Notes -- Certain Covenants -- Incurrence of Debt and Issuance of
Preferred Stock."
In addition, the Company may not pay any principal of, premium, if any, or
interest on, or any other amounts owing in respect of, the Notes, or purchase,
redeem or otherwise retire the Notes, or make any deposit pursuant to the
defeasance provisions for the Notes, if Designated Senior Debt (as such term is
defined in the Indenture) is not paid when due, unless such default is cured or
waived or has ceased to exist or such Designated Senior Debt has been repaid in
full. Under certain circumstances, no payments may be made for a specified
period with respect to the principal of, premium, if any, and interest on, and
any other amounts owing in respect of, the Notes if a default, other than a
payment default, exists with respect to Designated Senior Debt, including
indebtedness under the Credit Facility, unless such default is cured, waived or
has ceased to exist or such indebtedness has been repaid in full. See
"Description of the Notes -- Subordination." If any Event of Default occurs and
is continuing, the Trustee (as defined herein) or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately. Such a continuing Event of Default, however, also
would permit the acceleration of all outstanding obligations under the Credit
Facility and may additionally permit the acceleration of other then-
11
<PAGE> 13
outstanding indebtedness of the Company or its Subsidiaries, some of which
indebtedness may be Senior Debt. In such event, the subordination provisions of
the Indenture would prohibit any payments to Holders of the Notes unless and
until such obligations (and any other accelerated Senior Debt) have been repaid
in full. See "Description of the Notes -- Subordination" and "-- Events of
Default and Remedies."
OBLIGATIONS IN EVENT OF A CHANGE OF CONTROL; RESTRICTIONS ON REPURCHASE OF NOTES
Upon the occurrence of a Change of Control, the Company may be required to
purchase all or a portion of the Notes then outstanding at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of purchase. Prior to commencing such an offer to purchase,
the Company may be required to (i) repay in full all indebtedness of the Company
that would prohibit the repurchase of the Notes, including under the Credit
Facility, or (ii) obtain any consent required to make the repurchase. If the
Company is unable to repay all of such indebtedness or is unable to obtain the
necessary consents, the Company will be unable to offer to purchase the Notes
and that failure would constitute an Event of Default under the Indenture. There
is no assurance that the Company will have sufficient funds available at the
time of any Change of Control to repurchase the Notes. The events that require a
repurchase upon a Change of Control under the Indenture may also constitute
events of default under the Credit Facility or subsequently incurred
indebtedness of the Company. See "Description of the Notes -- Repurchase at the
Option of Holders Upon Change in Control."
MANAGEMENT OF EXPANSION AND CONSOLIDATION
The Company is currently experiencing a period of rapid expansion through
both internal growth and acquisitions, with net sales increasing from $80.7
million in fiscal 1992 to $490.6 million in fiscal 1997 and $407.0 million in
the first six months of fiscal 1998. There can be no assurance that the
Company's historical growth will continue or that the Company will successfully
manage the integration of acquired operations. Expansion has caused, and is
expected to continue to cause, strain on the Company's infrastructure, including
its managerial, technical, financial and other resources. To manage further
growth, the Company must continue to enhance financial controls and hire
additional engineering and sales personnel. The Company's ability to manage any
future growth effectively will require it to attract, train, motivate and manage
new employees successfully, to integrate new employees into its overall
operations and to continue to improve its operational systems. The Company may
experience certain inefficiencies as it integrates new operations and manages
geographically dispersed operations. There can be no assurance that the Company
will be able to manage its expansion effectively, and a failure to do so could
have a material adverse effect on the Company, its results of operations,
prospects or debt service ability. In addition, the Company's results of
operations, prospects or debt service ability would be adversely affected if its
new facilities do not achieve growth sufficient to offset increased expenditures
associated with expansion.
Expansion through acquisitions and internal growth has contributed to the
Company's incurring significant accounting charges and experiencing volatility
in its operating results. There can be no assurance that the Company will not
continue to experience volatility in its operating results or incur write-offs
in connection with its expansion efforts. See "-- Acquisitions." In addition,
the Company has recently completed the construction of significant new
facilities in Guadalajara, Mexico, Doumen, China, and San Jose, California,
resulting in new fixed costs and other operating expenses, including substantial
increases in depreciation expense that will increase the Company's cost of
sales. There can be no assurances that the Company will utilize a sufficient
portion of the capacity of these facilities to offset the impact of these
expenses on its gross margins and operating income. If revenue levels do not
increase sufficiently to offset these new expenses, the Company's results of
operations, prospects or debt service ability could be materially adversely
affected.
The Company is beginning the process of replacing its management
information systems. The new systems will significantly affect many aspects of
the Company's business including its manufacturing, sales and marketing, and
accounting functions, and the Company's ability to integrate the Karlskrona
Facilities and the operations of Neutronics, which must be converted to the new
system, and the successful implementation of these systems will be important to
facilitate future growth. The Company intends to implement the new
12
<PAGE> 14
system incrementally on a regional basis and currently anticipates that the
implementation of the new management information systems will take at least 18
months. The Company anticipates expending from $7.0 million to $15.0 million in
fiscal 1998 and 1999 to implement the new management information system, and
anticipates funding these expenditures with cash from operations and borrowings
under its credit facility. Delays or difficulties could be encountered in the
implementation process, which could cause significant disruption in operations,
including problems with the delivery of its products or an adverse impact on its
ability to access timely and accurate financial and operating information and
could materially increase the cost of implementing the new management
information system. If the Company is not successful in implementing its new
systems or if the Company experiences difficulties in such implementation, the
Company, its results of operations, prospects or debt service ability could be
materially adversely affected.
ACQUISITIONS
Acquisitions have represented a significant portion of the Company's growth
strategy, and the Company intends to continue to pursue attractive acquisition
opportunities. Acquisitions involve a number of risks in addition to those
described under "-- Management of Expansion and Consolidation" that could
adversely affect the Company, including the diversion of management's attention,
the integration and assimilation of the operations and personnel of the acquired
companies, the amortization of acquired intangible assets and the potential loss
of key employees of the acquired companies. The Company may not have had any
experience with technologies, processes and markets involved with the acquired
business and accordingly may lack the management and marketing experience that
will be necessary to successfully operate and integrate the business. The
successful operation of an acquired business will require communication and
cooperation in product development and marketing among senior executives and key
technical personnel. Given the inherent difficulties involved in completing a
major business combination, there can be no assurance that such cooperation will
occur or that integration of the respective businesses will be successful and
will not result in disruption in one or more sectors of the Company's business.
In addition, there can be no assurance that the Company will retain key
technical, management, sales and other personnel, that the market will favorably
view the Company's entry into a new industry or market or that the Company will
realize any of the other anticipated benefits of the acquisition. Furthermore,
additional acquisitions would require investment of financial resources, and may
require debt or equity financing. No assurance can be given that the Company
will consummate any acquisitions in the future, that any past or future
acquisition by the Company will not materially adversely affect the Company, its
results of operations, prospects or debt service ability, or that any such
acquisition will enhance the Company's business.
The March 27, 1997 acquisition of the Karlskrona Facilities and the
execution of a multi-year purchase agreement (the "Karlskrona Purchase
Agreement") between the Company and Ericsson (together the "Karlskrona
Acquisition") and the October 30, 1997 acquisition of Neutronics each represent
a significant expansion of the Company's operations and entail a number of
risks. The acquired operations are now being integrated into the Company's
ongoing manufacturing operations. This requires optimizing production lines,
implementing new management information systems, implementing the Company's
operating systems, and assimilating and managing existing personnel. The
difficulties of this integration may be further complicated by the geographical
distance of the Karlskrona Facilities and Neutronics' operations from the
Company's current operations in East Asia and North America. In addition, these
acquisitions have increased and will continue to increase the Company's expenses
and working capital requirements, and place burdens on the Company's management
resources. In the event the Company is unsuccessful in integrating the acquired
operations, the Company would be materially adversely affected. In addition,
prior to the acquisitions of the Karlskrona Facilities and Neutronics, the
Company had no experience operating in Sweden or in Central Europe, and there
can be no assurance that the Company will achieve acceptable levels of
profitability at the acquired operations, or that the acquisitions will not
adversely affect its gross margins.
The Company intends to use the Karlskrona Facilities to manufacture
products for OEMs other than Ericsson. The Company has no commitments by any
third party to purchase manufacturing services to be provided at the Karlskrona
Facilities, and no assurance can be given that the Company will be successful in
marketing and providing manufacturing services to third parties from the
Karlskrona Facilities. Further, no
13
<PAGE> 15
assurances can be given as to the Company's ability to expand manufacturing
capacity at the Karlskrona Facilities.
Since the Company's acquisition of Astron, the net sales generated by
Astron's then-existing products and services, and by its products and services
then under development, have grown at rates significantly lower than those
anticipated by the Company at the time of the acquisition and significantly
lower than those assumed in the independent valuation used by the Company in
allocating the purchase price of Astron to the assets acquired. The Company has
not yet completed development of other technologies that were material to its
valuation of Astron and which it initially anticipated completing in fiscal 1996
and 1997. The completion of such development is subject to a number of
uncertainties, including potential difficulties in optimizing manufacturing
processes and the potential development of alternative technologies by
competitors that could render Astron's technologies uncompetitive or obsolete.
Accordingly, no assurances can be given as to whether, or when, the Company will
be able to complete the development of such technologies, as to the cost of such
development, or as to potential sales of products based on such technologies.
The capabilities provided by the technologies under development may not
otherwise be available to the Company. Accordingly, the failure by the Company
to successfully develop such technologies would limit the Company's ability to
compete effectively for business requiring certain advanced capabilities, and
would prevent it from achieving the anticipated benefits of the Astron
acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview."
In the second quarter of fiscal 1998, the Company revised its estimate of
the useful lives of certain long-lived intangible assets (consisting of
goodwill, customer lists and trademarks and tradenames) associated with the
Astron acquisition, reducing the useful lives from 20 and 25 years to 10 years.
This revision will increase the Company's amortization expense by approximately
$279,000 per quarter beginning in the second quarter of fiscal 1998.
RISKS OF KARLSKRONA PURCHASE AGREEMENT
As a result of the Karlskrona Acquisition, sales to Ericsson represent, and
the Company expects will continue to represent, a large portion of its net
sales. The Company currently anticipates that sales to Ericsson will represent
from 25% to 40% of its net sales in fiscal 1998. Prior to the Karlskrona
Acquisition, Ericsson was not a substantial customer of the Company. There can
be no assurance that the Company can reduce costs and prices to Ericsson over
time as contemplated by the Karlskrona Purchase Agreement. In addition, there
can be no assurance that the Company will not encounter difficulties in meeting
Ericsson's expectations as to product quality and timeliness. If Ericsson's
requirements exceed the volume anticipated by the Company, the Company may be
unable to meet these requirements on a timely basis. The Company's inability to
meet Ericsson's volume, quality, timeliness and cost requirements, and to
quickly resolve any other issues with Ericsson, could have a material adverse
effect on the Company, its results of operations, prospects or debt service
ability. There can also be no assurance that Ericsson will purchase a sufficient
quantity of products from the Company to meet the Company's expectations or that
the Company will utilize a sufficient portion of the capacity of the Karlskrona
Facilities to achieve profitable operations.
The Company intends to use the Karlskrona Facilities to manufacture
products for OEMs other than Ericsson. Ericsson has certain rights to be
consulted on the management of the Karlskrona Facilities and to approve the use
of the Karlskrona Facilities for Ericsson's competitors, or for other customers
where such use might adversely affect Ericsson's access to production capacity
at the facilities.
The Karlskrona Purchase Agreement contains cost reduction targets and price
limitations and imposes on the Company certain manufacturing quality
requirements, and there can be no assurance that the Company can achieve
acceptable levels of profitability under the Karlskrona Purchase Agreement or
reduce costs and prices to Ericsson over time as contemplated by the Karlskrona
Purchase Agreement. In addition, the Karlskrona Purchase Agreement requires that
the Company maintain a ratio of equity to total liabilities, debt and equity of
at least 25%, and a current ratio of at least 120%. Further, the Karlskrona
Purchase Agreement prohibits the Company from selling or relocating the
equipment acquired in the transaction without Ericsson's consent. A material
breach by the Company of any of the terms of the Karlskrona Purchase Agreement
could
14
<PAGE> 16
allow Ericsson to repurchase the assets conveyed to the Company at the Company's
book value or to obtain other relief, including the cancellation of outstanding
purchase orders or termination of the Karlskrona Purchase Agreement. Ericsson
also has certain rights to be consulted on the management of the Karlskrona
Facilities and to approve the use of the Karlskrona Facilities for Ericsson's
competitors or for other customers where such use might adversely affect
Ericsson's access to production capacity at the facilities. In addition, without
Ericsson's consent, the Company may not enter into any transactions that could
adversely affect its ability to continue to supply products and services to
Ericsson under the Karlskrona Purchase Agreement or its ability to reduce costs
and prices to Ericsson. As a result of these rights, Ericsson may, under certain
circumstances, retain a significant degree of control over the Karlskrona
Facilities and their management. See "Business -- Karlskrona Acquisition."
CUSTOMER CONCENTRATION; DEPENDENCE ON ELECTRONICS INDUSTRY
A small number of customers are currently responsible for a significant
portion of the Company's net sales. The Company's largest customer in the three
months ended September 30, 1997 was Ericsson, with net sales to Ericsson
accounting for approximately 30% of its total net sales. See "-- Risks of
Karlskrona Purchase Agreement." Net sales to Advanced Fibre Communications were
approximately 11% and 3% for the three months ending September 30, 1997 and
September 30, 1996 respectively. Net sales to the Company's top five customers
during the six months ended September 30, 1997 accounted for approximately 63%
of consolidated sales compared to 46.5% during the six months ended September
30, 1996. In fiscal 1997 the Company's five largest customers accounted for
approximately 46% of net sales. Approximately 13% and 11% of the Company's net
sales for fiscal 1997 were derived from sales to Lifescan and U.S. Robotics,
respectively. Approximately 30.9% and 10.6% of the Company's net sales for the
first six months of fiscal 1998 were derived from sales to Ericsson and Advanced
Fibre Communications, respectively. The Company anticipates that a small number
of customers will continue to account for a large portion of its net sales as it
focuses on strengthening and broadening relationships with leading OEMs. See
"Business -- Customers" and "-- Karlskrona Acquisition."
The composition of the group comprising the Company's largest customers has
varied from year to year, and there can be no assurance that the Company's
principal customers will continue to purchase products and services from the
Company at current levels, if at all. For example, the Company expects that its
sales to Global Village Communications in fiscal 1998 will be significantly
lower than in recent periods. Significant reductions in sales to any of these
customers, or the loss of one or more major customers, would have a material
adverse effect on the Company. The Company generally does not obtain firm
long-term volume purchase commitments from its customers, and over the past few
years has experienced reduced lead-times in customer orders. In addition,
customer contracts can be canceled and volume levels can be changed or delayed.
The timely replacement of canceled, delayed, or reduced contracts with new
business cannot be assured. These risks are exacerbated because a majority of
the Company's sales are to customers in the electronics industry, which is
subject to rapid technological change and product obsolescence. The factors
affecting the electronics industry in general, or any of the Company's major
customers in particular, could have a material adverse effect on the Company,
its results of operations, prospects or debt service ability. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
Credit terms are extended to customers after performing credit evaluations,
which continue throughout a customer's contract period. Credit losses have
occurred in the past, and no assurances can be given that credit losses, which
could be material, will not occur in the future. The Company's concentration of
customers increases the risk that any credit loss would have a material adverse
effect on the Company, its results of operations, prospects or debt service
ability. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
VARIABILITY OF CUSTOMER REQUIREMENTS AND OPERATING RESULTS
Contract manufacturers must provide increasingly rapid product turnaround
and respond to ever-shorter lead times. The Company generally does not obtain
long-term purchase orders but instead works with its
15
<PAGE> 17
customers to anticipate the volume of future orders. In certain cases, the
Company will procure components without a customer commitment to pay for them,
and the Company must continually make other significant decisions for which it
is responsible, including the levels of business that it will seek and accept,
production schedules, personnel needs and other resource requirements. A variety
of conditions, both specific to the individual customer and generally affecting
the industry, may cause customers to cancel, reduce or delay orders.
Cancellations, reductions or delays by a significant customer or by a group of
customers would adversely affect the Company, its results of operations,
prospects or debt service ability. On occasion, customers may require rapid
increases in production, which can stress the Company's resources and reduce
margins. Although the Company has increased its manufacturing capacity, there
can be no assurance that the Company will have sufficient capacity at any given
time to meet its customers' demands if such demands exceed anticipated levels.
In addition to the variability resulting from the short-term nature of its
customers' commitments, other factors have contributed, and may contribute in
the future, to 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'
announcements, introductions and market acceptance of new products or new
generations of products; evolution 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; product mix; and changes or anticipated changes in economic
conditions. In addition, the Company's net sales are adversely affected by the
observance of local holidays during the fourth fiscal quarter in Malaysia and
China, reduced production levels in Sweden in July, and the reduction in orders
by certain customers in the fourth fiscal quarter reflecting a seasonal slowdown
following the Christmas holiday.
Expansion through acquisition and internal growth has contributed to the
Company's incurring significant accounting charges and to volatility in its
operating results. In the fourth quarter of fiscal 1996, the Company reported a
substantial loss as a result of the write off of in-process research and
development charges related to the Astron acquisition and the closing of
facilities in Malaysia and China. In fiscal 1997, the Company reported charges
associated with closing of its manufacturing facility in Texas, downsizing
manufacturing operations in Singapore and writing-off of obsolete equipment and
incurring severance obligations at the nCHIP semiconductor fabrication facility.
The Company anticipates charges in the third quarter of fiscal 1997 of
approximately $4.0 million as a result of its acquisition of Neutronics in
October 1997 and Neutronics' cancellation of its planned initial public
offering. There can be no assurance that the Company will not continue to
experience volatility in its operating results or incur write-offs in connection
with expansion, acquisitions and consolidation.
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, its results of operations, prospects or debt service ability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
RAPID TECHNOLOGICAL CHANGE
The markets in which the Company's customers compete are characterized by
rapidly changing technology, evolving industry standards and continuous
improvements in products and services. These conditions frequently result in
short product life cycles. The Company's success will depend to a significant
extent on the success achieved by its customers in developing and marketing
their products, some of which are new and untested. If technologies or standards
supported by customers' products become obsolete or fail to gain widespread
commercial acceptance, the Company's business, results of operations, prospects
or debt service ability may be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
The Company has made substantial investments in developing advanced
interconnect technological capabilities. See "Business -- Services." These
capabilities, primarily MCMs, miniature gold-finished PCBs
16
<PAGE> 18
and epoxy molding conductive compounds, currently account for a relatively small
portion of the overall market for electronic interconnect products. The ability
of the Company to achieve desired operating results will depend upon the extent
to which customers design, manufacture and adopt systems based on these advanced
technologies. There can be no assurance that the Company will be able to develop
and exploit these technologies successfully. In addition, there can be no
assurance that the Company will be able to exploit new technologies as they are
developed or to adapt its manufacturing processes, technologies and facilities
to address emerging customer requirements.
COMPETITION
The electronics contract manufacturing industry is extremely competitive
and includes hundreds of companies, several of whom have achieved substantial
market share. The Company competes against numerous domestic and foreign
contract manufacturers, and current and prospective customers also evaluate the
Company's capabilities against the merits of internal production. In addition,
in recent years the electronics contract manufacturing industry has attracted a
significant number of new entrants, including large OEMs with excess
manufacturing capacity, and many existing participants, including the Company,
have substantially expanded their manufacturing capacity by expanding their
facilities and adding new facilities. In the event of a decrease in overall
demand for contract manufacturing services, this increased capacity could result
in substantial pricing pressures, which could adversely affect the Company's
operating results. Certain of the Company's competitors, including Solectron
Corporation and SCI Systems, have substantially greater manufacturing,
financial, research and development and marketing resources than the Company.
The Company believes that the principal competitive factors in the segments of
the contract manufacturing industry in which it operates are cost, technological
capabilities, responsiveness and flexibility, delivery cycles, location of
facilities, product quality and range of services available. Failure to satisfy
any of the foregoing requirements could materially adversely affect the
Company's competitive position, its results of operations, prospects or debt
service ability. See "Business -- Competition."
RISK OF INCREASED TAXES
The Company has structured its operations 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 these tax incentives are not
renewed upon expiration, if the tax rates applicable to the Company are
rescinded or changed, or if tax authorities successfully challenge the manner in
which profits are recognized among the Company's subsidiaries, the Company's
taxes would increase and its results of operations, cash flow and debt service
ability 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
would prevail in any such dispute. If the Company's Asian profits became subject
to U.S. income taxes, the Company's worldwide effective tax rate would increase
and its results of operations, cash flow and debt service ability would be
adversely affected. The expansion by the Company of its operations in North
America and Northern Europe may increase its worldwide effective tax rate. See
"Management's Discussion and Analysis of Financial Condition and Result of
Operations -- Provision for Income Taxes."
RISKS OF INTERNATIONAL OPERATIONS
The Company has substantial manufacturing operations located in Austria,
China, Hungary, Malaysia, Sweden and the United States. In addition, the Company
has recently constructed a manufacturing campus in Mexico, where the Company has
never manufactured products. The Company's net sales derived from operations
outside of the United States was $327.0 million in fiscal 1997, $161.8 million
of which was derived from operations in Hong Kong and China, and was $302.0
million in the six months ended September 30, 1997, $107.8 million of which was
derived from operations in Hong Kong and China. The geographical distances
between Asia, North America and Europe create a number of logistical and
communications challenges. Because of the location of manufacturing facilities
in a number of countries, the Company is affected by economic and political
conditions in those countries, including fluctuations in the value of
17
<PAGE> 19
currency, duties, possible employee turnover, labor unrest, lack of developed
infrastructure, longer payment cycles, greater difficulty in collecting accounts
receivable, the burdens and costs of compliance with a variety of foreign laws
and, in certain parts of the world, political instability. Changes in policies
by the U.S. or foreign governments resulting in, among other things, increased
duties, higher taxation, currency conversion limitations, restrictions on the
transfer of funds, limitations on imports or exports, or the expropriation of
private enterprises could also have a material adverse effect on the Company,
its results of operations, prospects or debt service ability. The Company could
also be adversely affected if the current policies encouraging foreign
investment or foreign trade by its host countries were to be reversed. In
addition, the attractiveness of the Company's services to its U.S. customers is
affected by U.S. trade policies, such as "most favored nation" status and trade
preferences for certain Asian nations. For example, trade preferences extended
by the United States to Malaysia in recent years were not renewed in 1997.
In particular, the Company's operations and assets are subject to
significant political, economic, legal and other uncertainties in China and
Mexico, where the Company is substantially expanding its operations.
Risks Relating to China. The Company's operations and assets are subject to
significant political, economic, legal and other uncertainties in China, where
the Company is substantially expanding its operations. Under its current
leadership, the Chinese government has been pursuing economic reform policies,
including the encouragement of foreign trade and investment and greater economic
decentralization. No assurance can be given, however, that the Chinese
government will continue to pursue such policies, that such policies will be
successful if pursued, or that such policies will not be significantly altered
from time to time. Despite progress in developing its legal system, China does
not have a comprehensive and highly developed system of laws, particularly with
respect to foreign investment activities and foreign trade. Enforcement of
existing and future laws and contracts is uncertain, and implementation and
interpretation thereof may be inconsistent. As the Chinese legal system
develops, the promulgation of new laws, changes to existing laws and the
preemption of local regulations by national laws may adversely affect foreign
investors.
The Company could also be adversely affected by the imposition of austerity
measures intended to reduce inflation, the inadequate development or maintenance
of infrastructure or the unavailability of adequate power and water supplies,
transportation, raw materials and parts, or a deterioration of the general
political, economic or social environment in China.
In addition, China currently enjoys Most Favored Nation ("MFN") status
granted by the United States, pursuant to which the United States imposes the
lowest applicable tariffs on Chinese exports to the United States. The United
States annually reconsiders the renewal of MFN trading status for China. No
assurance can be given that China's MFN status will be renewed in the future
years. China's loss of MFN status could adversely affect the Company by
increasing the cost to the U.S. customers of products manufactured by the
Company in China.
The Company maintains certain administrative, procurement and manufacturing
operations in Hong Kong, which may be influenced by the changing political
situation in Hong Kong and by the general state of the Hong Kong economy. On
July 1, 1997, sovereignty over Hong Kong was transferred from the United Kingdom
to China, and Hong Kong became a Special Administrative Region ("SAR"). Based on
current political conditions and the Company's understanding of the Basic Law of
the Hong Kong SAR of China, the Company does not believe that the transfer of
sovereignty over Hong Kong will have a material adverse effect on the Company,
its results of operations, prospects or debt service ability. There can be no
assurance, however, that changes in political, legal or other conditions will
not result in any such adverse effect.
Risks Relating to Mexico. The Mexican government exercises significant
influence over many aspects of the Mexican economy. Accordingly, the actions of
the Mexican government concerning the economy could have a significant effect on
private sector entities in general and the Company in particular. In addition,
during the 1980s, Mexico experienced periods of slow or negative growth, high
inflation, significant devaluations of the peso and limited availability of
foreign exchange. As a result of the Company's recent expansion in Mexico,
economic conditions in Mexico will affect the Company.
18
<PAGE> 20
Risks Relating to Hungary. A majority of Neutronics' manufacturing
operations are located in Hungary. Hungary has undergone significant political
and economic change in recent years. Political, economic, social and other
developments in Hungary may in the future have a material adverse effect on the
Company's business. In particular, changes in laws or regulations (or in the
interpretation of existing laws or regulations), whether caused by change in the
Hungarian government or otherwise, could materially adversely affect the
Company's operations and business. Annual inflation and interest rates in
Hungary have been much higher than those in Western Europe. Exchange rate
policies have not always allowed for the free conversion of currencies at the
market rate. Fluctuations of inflation and exchange rates could have an adverse
effect on the Neutronics operations business and the market value of the Shares.
Corporate contract, property, insolvency, competition and securities and
other laws and regulations in Hungary have been, and continue to be,
substantially revised during its transition to a market economy. Therefore, the
interpretation and procedural safeguards of the new legal and regulatory system
are in the process of being developed and defined and existing laws and
regulations may be applied inconsistently. Also, in some circumstances, it may
not be possible to obtain the legal remedies provided for under those laws and
regulations in a reasonably timely manner, if at all.
CURRENCY FLUCTUATIONS
While Flextronics transacts business predominantly in U.S. dollars and most
of its revenues are collected in U.S. dollars, a portion of Flextronics' costs
such as payroll, rent and indirect operation costs, are denominated in other
currencies such as Singapore dollars, Swedish kronor, Hong Kong dollars,
Malaysian ringgit, British pounds sterling and Chinese renminbi. Historically,
fluctuations in foreign currency exchange rates have not resulted in significant
exchange losses to the Company. As a result of the Karlskrona Acquisition, a
significant portion of the Company's business has been, and is expected to
continue to be, conducted in Swedish kronor. Changes in the relation of these
and other currencies to the U.S. dollar will affect the Company's cost of goods
sold and operating margins and could result in exchange losses. The impact of
future exchange rate fluctuations on the Company's results of operations cannot
be accurately predicted.
The Company has historically not actively engaged in substantial exchange
rate hedging activities. However, in August 1997 the Company entered into
forward exchange contracts with respect to the kronor to reduce foreign exchange
risks arising from a kronor-denominated intercompany loan. These contracts were
settled in September 1997 and did not have a material effect on the Company's
results of operations or cash flow. The Company from time to time may enter into
forward exchange contracts or other hedging activities with respect to other
specific, fixed foreign currency obligations. Because the Company only hedges
fixed obligations, the Company does not expect that these hedging activities
will have a material effect on its results of operations or cash flow. However,
there can be no assurance that the Company will engage in any hedging activities
in the future or that any of its hedging activities will be successful. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations -- Foreign Exchange Gain (Loss)."
Over the last five years, the Chinese renminbi has experienced significant
devaluation against most major currencies. The establishment of the current
exchange rate system as of January 1, 1994 produced a significant devaluation of
the renminbi from $1.00 to Rmb 5.7 to approximately $1.00 to Rmb 8.7. The rates
at which exchanges of renminbi into U.S. dollars may take place in the future
may vary, and any material increase in the value of the renminbi relative to the
U.S. dollar would increase the Company's costs and expenses and therefore would
have a material adverse effect on the Company.
LIMITED AVAILABILITY OF COMPONENTS
A substantial majority of the Company's net sales are derived from turnkey
manufacturing in which the Company is responsible for procuring materials, which
typically results in the Company bearing the risk of component price increases.
At various times there have been shortages of certain electronics components,
including DRAMs, memory modules, logic devices, ASICs, laminates, specialized
capacitors and integrated circuits in bare-die form. Component shortages could
result in manufacturing and shipping delays or higher
19
<PAGE> 21
prices which could have a material adverse effect on the Company, its results of
operations, prospects or debt service ability.
DEPENDENCE ON KEY PERSONNEL AND SKILLED EMPLOYEES
The Company's success depends to a large extent upon the continued services
of key executives and skilled personnel. Generally, the Company's employees are
not bound by employment or noncompetition agreements. The Company has entered
into service agreements with certain officers, including Ronny Nilsson and Tsui
Sung Lam, some of which contain non-competition provisions and provides its
officers and key employees with stock options that are structured to incentivize
such employees to remain with the Company. However, there can be no assurance as
to the ability of the Company to retain its officers and key employees. The loss
of such personnel could have a material adverse effect on the Company, its
results of operations, prospects or debt service ability. The Company's business
also depends upon its ability to continue to recruit, train and retain skilled
and semi-skilled employees, particularly administrative, engineering and sales
personnel. There is intense competition for skilled and semi-skilled employees,
particularly in the San Jose, California market, and the Company's failure to
recruit, train and retain such employees could adversely affect the Company, its
results of operations, prospects or debt service ability.
ENVIRONMENTAL COMPLIANCE RISKS
The Company is subject to a variety of environmental regulations relating
to the use, storage, discharge and disposal of hazardous chemicals used during
its manufacturing process. Substrates for its MCMs are manufactured on a
semiconductor-type fabrication line in California owned by the Company. The
Company is also expanding its printed circuit board fabrication operations in
China. Proper handling, storage and disposal of the metals and chemicals used in
these manufacturing processes are important considerations in avoiding
environmental contamination. Although the Company believes that its facilities
are currently in material compliance with applicable environmental laws, and it
monitors its operations to avoid violations arising from human error or
equipment failures, there can be no assurances that violations will not occur.
In the event of a violation of environmental laws, the Company could be held
liable for damages and for the costs of remedial actions and could also be
subject to revocation of its effluent discharge permits. Any such revocations
could require the Company to cease or limit production at one or more of its
facilities, thereby having a material adverse effect on the Company's
operations. Environmental laws could also become more stringent over time,
imposing greater compliance costs and increasing risks and penalties associated
with any violation, which could have a material adverse effect on the Company,
its results of operations, prospects or debt service ability.
PROTECTION OF INTELLECTUAL PROPERTY
The Company relies on a combination of patent, trade secret and trademark
laws, confidentiality procedures and contractual provisions to protect its
intellectual property. The Company seeks to protect certain of its technology
under trade secret laws, which afford only limited protection. There can be no
assurance that any of the Company's pending patent applications will be issued
or that intellectual property laws will protect the Company's intellectual
property rights. In addition, there can be no assurance that any patent issued
to the Company will not be challenged, invalidated or circumvented or that the
rights granted thereunder will provide competitive advantages to the Company.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to obtain and use information that the Company regards as
proprietary. Furthermore, there can be no assurance that others will not
independently develop similar technology or design around any patents issued to
the Company. Moreover, effective protection of intellectual property rights may
be unavailable or limited in certain foreign countries in which the Company
operates. In particular, the Company may be afforded only limited protection of
its intellectual property rights in China.
The Company may in the future be notified that it is infringing certain
patent or other intellectual property rights of others, although there are no
such pending lawsuits against the Company or unresolved notices that it is
infringing intellectual property rights of others. No assurance can be given
that in the event of such infringement, licenses could be obtained on
commercially reasonable terms, if at all, or that litigation will not occur. The
failure to obtain necessary licenses or other rights or the occurrence of
litigation arising out of
20
<PAGE> 22
such claims could materially adversely affect the Company, its results of
operations, prospects or debt service ability.
LACK OF PUBLIC MARKET FOR THE NOTES; VOLATILITY
The Old Notes are eligible for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") Market. The New Notes will be
new securities, and there is no existing trading market for the New Notes.
Accordingly, there is no assurance regarding the future development of a trading
market for the New Notes or the ability of the holders, or the price at which
such holders may be able, to sell their New Notes. If such a market were to
develop, the New Notes could trade at prices that may be higher or lower than
the exchange tender price of the Old Notes. Prevailing market prices from time
to time will depend on many factors, including then existing interest rates, the
Company's operating results and cash flow and the market for similar securities.
Consequently, even if a trading market for the New Notes does develop,
there is no assurance as to the liquidity of that market. The Company does not
intend to apply for listing or quotation of the New Notes on any securities
exchange or in the over-the-counter market.
In addition, the liquidity of, and trading markets for, the New Notes may
be adversely affected by declines in the market for high-yield securities
generally. Such a decline may adversely affect liquidity and trading markets
independent of the financial performance of, and prospects for, the Company.
ENFORCEMENT OF CIVIL LIABILITIES
The Company has appointed Corporation Service Company, 80 State Street,
Albany, New York 12207, as its agent to receive service of process with respect
to any action brought against it in the United States District Court for the
Southern District of New York under the securities laws of the United States or
any state thereof, or any action brought against it in the Supreme Court of the
State of New York in the County of New York under the securities laws of New
York State arising out of or relating to the Offering, the Indenture, the Notes
or the Registration Rights Agreement (as defined).
The Company is incorporated in Singapore under the Companies Act. Certain
of its directors and executive officers (and certain experts named in this
Prospectus) reside in Singapore. All or a substantial portion of the assets of
such persons, and a substantial portion of the assets of the Company (other than
its United States Subsidiary), are located outside the United States. As a
result, it may not be possible for purchasers of the Notes to effect service of
process within the United States upon such persons or to enforce against them or
the Company, in the United States courts, judgments obtained in such courts
predicated upon the civil liability provisions of the federal securities laws of
the United States. The Company has been advised by its Singapore legal advisors,
Allen & Gledhill, that there is doubt as to the enforceability in Singapore,
either in original actions or in actions for the enforcement of judgments of
United States courts, of civil liabilities predicated upon the federal
securities laws of the United States.
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the New
Notes offered pursuant to the Exchange Offer. In consideration for issuing the
New Notes as contemplated in this Prospectus, the Company will receive in
exchange Old Notes in like principal amount, the terms of which are identical in
all respects to the New Notes except for certain transfer restrictions and
registration rights. The Old Notes surrendered in exchange for New Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the New
Notes will not result in any increase in the indebtedness of the Company.
The net proceeds to the Company from the sale of the Old Notes were
approximately $145.7 million, after deduction of discounts, commissions and
offering expenses. The Company used the net proceeds in part to repay the
amounts outstanding under the Credit Facility and the remainder will be used to
fund expansion and for working capital and other general corporate purposes.
21
<PAGE> 23
CAPITALIZATION
The following table sets forth the Company's unaudited cash and cash
equivalents and consolidated capitalization as of September 30, 1997, as
adjusted to give effect to the application of the estimated net proceeds from
the issuance and sale of the Notes and the recently completed Equity Offering,
and the application of the net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
(UNAUDITED)
----------------------
ACTUAL PRO FORMA
-------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents...................................... $ 17,825 $ 114,073
======== ========
Long-term debt (including current portion)
Credit Facility
Revolving credit loans(1)................................. $ 81,500 $ --
Term loan................................................. 65,500 --
Notes offered hereby......................................... -- 150,000
Capital leases............................................... 12,935 12,935
Other debt................................................... 6,709 6,709
-------- --------
Total debt........................................... 166,644 169,644
-------- --------
Shareholders' equity:
Ordinary Shares, S $0.01 par value; 100,000,000 shares
authorized, 13,805,351 shares issued and outstanding,
15,991,855 shares issued and outstanding as adjusted...... 89 104
Additional paid-in capital................................... 96,559 194,104
Accumulated deficit.......................................... (281) (281)
-------- --------
Total shareholders' equity........................... 96,367 193,927
======== ========
Total capitalization................................. $263,011 $ 363,571
======== ========
</TABLE>
- ---------------
(1) The Credit Facility currently provides for revolving credit borrowings of up
to $105.0 million, subject to certain borrowing conditions. See "Description
of the Credit Facility."
22
<PAGE> 24
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company as of
and for each of the six months ended September 30, 1996 and 1997 and the fiscal
years ended March 31, 1994, 1995, 1996 and 1997. The selected financial data set
forth below as of March 31, 1996 and 1997 and for the fiscal years ended March
31, 1995, 1996 and 1997 have 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 selected financial data
set forth below for the fiscal year ended March 31, 1994 have been derived from
audited financial statements not included in this Prospectus. The selected
financial data as of September 30, 1997 and for the six months ended September
30, 1996 and 1997 has been derived from the unaudited financial statements of
the Company for such periods. In the opinion of management, all adjustments,
consisting of only normal recurring adjustments, considered necessary for a fair
presentation have been made. These historical results are not necessarily
indicative of the results to be expected in the future. The following table is
qualified by reference to and should be read in conjunction with the
consolidated financial statements, related notes thereto and other financial
data included elsewhere herein.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
--------------------------------------------------- ----------------------------
1994 1995 1996(1) 1997(2) 1996 1997
-------- -------- ------------- ------------- ------------- ------------
(RESTATED)(3) (RESTATED)(3)
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................. $131,345 $237,386 $ 448,346 $ 490,585 $ 240,359 $406,970
Cost of sales.............................. 117,392 214,865 407,457 440,448 214,350 366,018
-------- -------- -------- -------- -------- --------
Gross profit............................. 13,953 22,521 40,889 50,137 26,009 40,952
Selling, general and administrative
expenses................................. 8,667 11,468 18,787 26,765 12,179 20,016
Acquired in-process research and
development.............................. 202 91 29,000 -- -- --
Goodwill amortization...................... 398 510 739 989 485 970
Intangible assets amortization............. 21 245 544 1,646 834 778
Provision for plant closings............... 830 -- 1,254 5,868 -- --
-------- -------- -------- -------- -------- --------
Operating income (loss).................. 3,835 10,207 (9,435) 14,869 12,511 19,188
Net interest expense....................... (1,778) (774) (2,380) (3,885) (2,127) (7,116)
Merger expenses............................ -- (816) -- -- -- --
Foreign exchange gain (loss)............... 402 (303) 872 1,168 218 944
Income (loss) from associated company...... (70) (729) -- 241 -- 650
Other income (expense)..................... -- 34 (398) (2,718) 355 (176)
-------- -------- -------- -------- -------- --------
Income (loss) before income taxes........ 2,389 7,619 (11,341) 9,675 10,957 13,490
Provision for income taxes................. 654 1,463 3,791 2,212 1,622 1,653
Extraordinary gain......................... 416 -- -- -- -- --
Net income (loss)........................ $ 2,151 $ 6,156 $ (15,132) $ 7,463 $ 9,335 $ 11,837
======== ======== ======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES(4)...... 2.30 6.60 -- 3.07 5.46 2.69
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30, 1997
--------------------------------------------------- ----------------------------
1994 1995 1996 1997 ACTUAL PRO FORMA(5)
-------- -------- ------------- ------------- ------------- ------------
(RESTATED)(3) (UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).................... $ 30,669 $ 33,425 $ 30,801 $ (25,047) $ (12,847) 165,332
Total assets................................. 103,129 116,117 231,024 359,234 426,300 526,860
Long-term debt and capital lease obligations
including current portion.................. 4,755 6,890 17,674 12,302 166,644 169,644
Shareholders' equity (deficit)............... 46,703 57,717 73,059 83,592 96,367 193,927
</TABLE>
- ---------------
(1) In fiscal 1996, the Company wrote off $29.0 million of in-process research
and development associated with the acquisition of Astron and also recorded
charges totaling $1.3 million for costs associated with the closing of one
of the Company's Malaysian plants and its Shekou, China operations.
(2) In fiscal 1997, the Company incurred plant closing expenses aggregating $5.9
million in connection with closing its manufacturing facility in Texas,
downsizing manufacturing operations in Singapore, and writing off obsolete
equipment and incurring severance obligations at the nCHIP semiconductor
fabrication operations.
(3) The consolidated financial statements of the Company for the fiscal year
ended March 31, 1996 and the six months ended September 30, 1996 have been
restated as a result of changes in the Company's accounting for the
acquisition of Astron. See Note 14 of Notes to
23
<PAGE> 25
Consolidated Financial Statements and "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Recent Changes in
Accounting for Astron Acquisition."
(4) Earnings are defined as income before provisions for income taxes and fixed
charges. Fixed charges consist of interest expenses, amortization of debt
issuance costs and the portion of the rental expenses representative of the
interest expense component. Earnings were insufficient to cover fixed
charges in the fiscal year ended March 31, 1996 by $11.3 million.
(5) Gives pro forma effect to (i) the sale of the Notes and the Equity Offering
and (ii) the application of the net proceeds therefrom to repay outstanding
loans under the Company's Credit Facility and for working capital, all as if
such transactions had occurred at September 30, 1997 for purposes of the pro
forma balance sheet data. See "Use of Proceeds" and "Capitalization."
24
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained herein, the matters discussed
below and elsewhere herein are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended. The words "expects," "anticipates,"
"believes," "intends" and similar expressions identify forward-looking
statements, which speak only as of the date hereof. These forward-looking
statements are subject to certain risks and uncertainties, including, without
limitation, those discussed in "Risk Factors," that could cause future results
to differ materially from historical results or those anticipated.
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 recent years, the Company has substantially expanded its manufacturing
capacity, technological capabilities and service offerings, through both
acquisitions and internal growth. See "Risk Factors -- Management of Expansion
and Consolidation," "Risk Factors -- Acquisitions" and Note 14 of Notes to
Consolidated Financial Statements.
In February 1996, the Company acquired Astron Group Limited in exchange for
(i) $13.4 million in cash, (ii) $15.0 million in 8% promissory notes ($10.0
million of which was paid in February 1997 and $5.0 million of which is payable
in February 1998), (iii) 238,684 Ordinary Shares issued at closing and (iv)
Ordinary Shares with a value of $10.0 million to be issued on June 30, 1998. The
Company also paid an earnout of an additional $6.25 million in cash in April
1997, based on the pre-tax profit of Astron for the calendar year ended December
31, 1996. In addition, the Company agreed to pay a $15.0 million consulting fee
in June 1998 to an entity affiliated with Stephen Rees, a former shareholder and
the Chairman of Astron, pursuant to a services agreement among the Company, one
of its subsidiaries and the affiliate of Mr. Rees (the "Services Agreement").
Payment of the fee was conditioned upon, among other things, Mr. Rees'
continuing as Chairman of Astron through June 1998. Mr. Rees currently also
serves as a director and executive officer of the Company.
In March 1997, the Company and Mr. Rees' affiliate agreed to remove the
remaining conditions to payment of the fee and to reduce the amount of the fee,
which remains payable in June 1998, to $14.0 million. This reduction was
negotiated in view of (i) a settlement in March 1997 of the amount of the
earnout payable by the Company to the former shareholders of Astron in which the
Company agreed to certain matters, previously in dispute, affecting the amount
of the earn-out payment, and (ii) the elimination of the conditions to payment
and of Mr. Rees' ongoing obligations under the Services Agreement. Substantially
all of the former shareholders of Astron were affiliates of Mr. Rees or members
of his family. See "-- Results of
25
<PAGE> 27
Operations -- Goodwill and Intangible Assets Amortization." Accordingly, the
only remaining obligation of either party is the Company's unconditional
obligation to pay the $14.0 million fee in June 1998. Of the $14.0 million, $5.0
million must be paid in cash. The remainder may be paid in either cash or
Ordinary Shares at the option of the Company, and the Company intends to pay
such amount in Ordinary Shares. See "-- Recent Changes in Accounting for Astron
Acquisition."
Since the Company's acquisition of Astron, the net sales generated by
Astron's then-existing products and services, and by its products and services
then under development, have grown at rates significantly lower than those
anticipated by the Company at the time of the acquisition and significantly
lower than those assumed in the independent valuation used by the Company in
allocating the purchase price of Astron to the assets acquired. The Company
believes that this is attributable primarily to (i) delays in developing certain
new technologies as a result of several factors, including the unanticipated
complexity of many of the new technologies, difficulties in achieving expected
production yields, changes in the Company's development priorities and
unavailability of certain materials; (ii) interruptions in production and
diversions of resources, resulting from a fire in Astron's facilities in Doumen,
China in April 1996 (although the Company does not currently expect that such
event will have a significant long-term effect on Astron's business, customer
base or intangible assets); (iii) reduced sales of certain products to end-users
by certain of Astron's customers; and (iv) changes in product mix that adversely
affected production efficiency. The Company estimates that, at the time of the
acquisition, the average remaining economic life of Astron's developed process
technologies was seven years. While the Company has completed the development of
certain of the technologies that were under development at the time of the
acquisition, the Company has not yet completed development of other technologies
that were material to its valuation of Astron and which it initially anticipated
completing in fiscal 1996 and 1997. The Company currently anticipates that
completion of these technologies will require the expenditure of approximately
$5.0 million through fiscal 1999, consisting primarily of the cost of internal
engineering staff and related overhead, materials costs and other expenses. The
completion of such development is subject to a number of uncertainties,
including potential difficulties in optimizing manufacturing processes and the
potential development of alternative technologies by competitors that could
render Astron's technologies uncompetitive or obsolete. Accordingly, no
assurances can be given as to whether, or when, the Company will be able to
complete the development of such technologies, as to the cost of such
development, or as to potential sales of products based on such technologies.
The capabilities provided by the technologies under development may not
otherwise be available to the Company. Accordingly, the failure by the Company
to successfully develop such technologies would limit the Company's ability to
compete effectively for business requiring certain advanced capabilities, and
would prevent it from achieving the anticipated benefits of the Astron
acquisition. See "Risk Factors -- Acquisitions" and "-- Results of
Operations -- Acquired In-Process Research and Development."
In the fourth quarter of fiscal 1996, the Company recorded charges totaling
$1.3 million for costs associated with the closing of one of the Company's
Malaysia plants and its Shekou, China operations in addition to the write-off of
$29.0 million of in-process research and development associated with the
acquisition of Astron. Without taking into account these write-offs and charges,
the Company's net income and earnings per share in fiscal 1996 would have been
$15.1 million and $1.13, respectively.
On November 25, 1996, the Company acquired Fine Line for an aggregate of
223,321 Ordinary Shares in a transaction accounted for as pooling of interest.
The Company's prior financial statements were not restated because the financial
results of Fine Line did not have a material impact on the consolidated results.
On December 20, 1996, the Company acquired 40% of FICO for $5.2 million. Of
this, the Company paid $3.0 million in December 1996 and accrued the $2.2
million balance in the fourth quarter of fiscal 1997. The Company also has an
option to purchase the remaining 60% interest of FICO in 1998 for a price that
is dependent on the financial performance of FICO for the year ending December
31, 1997.
On March 27, 1997, the Company acquired the Karlskrona Facilities for
approximately $82.4 million. The acquisition was financed by borrowings under
the Credit Facility, which the Company repaid in October 1997 with the net
proceeds from the Offering and the Equity Offering. The transaction has been
accounted for under the purchase method. As a result, the purchase price was
allocated to the assets acquired based on their
26
<PAGE> 28
estimated fair market values at the date of acquisition. See "Risk
Factors -- Acquisitions" and "Business -- Recent Acquisitions."
On October 30, 1997 the Company acquired 92% of the outstanding ordinary
shares of Neutronics, an Austrian PCB assembly company with operations in
Austria and Hungary, for 2,806,000 Ordinary Shares of the Company. Neutronics'
sales in the 12 months ended June 30, 1997 were approximately $142.6 million.
Neutronics' largest customer is Philips Electronics which accounted for
approximately 60% of its net sales for the six month period ended June 30, 1997.
The acquisition of Neutronics will be accounted for as a
pooling-of-interests, and the Company will restate its prior period financial
statements to give effect to this acquisition when it reports its results for
the fiscal quarter ended December 31, 1997. The combined company anticipates
incurring expenses of approximately $4.0 million during the quarter ending
December 31, 1997 associated with this transaction and the cancellation of
Neutronics' planned initial public offering. The ability of the Company to
obtain the benefits of the Neutronics acquisition is subject to a number of
risks and uncertainties, including the Company's ability to successfully
integrate the operations of Neutronics and its ability to maintain, and
increase, sales to Neutronics customers. See "Risk Factors -- Acquisitions" and
"Business -- Recent Acquisitions."
On December 1, 1997 the Company acquired DTM Products, Inc., a
Colorado-based producer of injection molded plastics for North American OEMs, in
exchange for 252,469 Ordinary Shares, and Energipilot AB, a Swedish company
principally engaged in providing cables and cable assemblies for Northern
European OEMs, in exchange for 229,990 Ordinary Shares. The acquisitions of DTM
and Energipilot will be accounted for as poolings-of-interests. The Company does
not intend to restate its prior period financial statements with respect to
these acquisitions because they will not have a material impact on its
consolidated results.
The Company intends to continue to pursue attractive acquisition
opportunities in the future. The Company has no understandings, commitments or
agreements with respect to any acquisitions. Acquisitions present a number of
risks, and there can be no assurance that the Company will complete any future
acquisitions or that any future acquisitions will not materially adversely
affect the Company. See "Risk Factors -- Acquisitions."
RECENT CHANGES IN ACCOUNTING FOR ASTRON ACQUISITION
The Company has restated its financial results for the fiscal year ended
March 31, 1996 and for the first three reported quarters of the fiscal year
ended March 31, 1997 to reflect corrections to its accounting for the
acquisition of Astron. The acquisition of Astron has been accounted for under
the purchase method, and accordingly the purchase price had been allocated to
the assets and liabilities assumed based upon their estimated fair values at the
date of acquisition. The revisions include an increase in the initially recorded
purchase price to include the payment to be made in June 1998 to an affiliate of
Stephen Rees pursuant to the Services Agreement. In addition, a second valuation
was obtained and used to allocate the purchase price to the assets acquired,
including current assets, net property, plant and equipment, developed
technologies, in-process research and development, assembled workforce,
tradenames and trademarks, customer list and other intangible assets. As a
consequence, in-process research and development written off in the fiscal year
ended March 31, 1997 (the "In-Process R&D") was reduced from $31.6 million to
$29.0 million and the fair value of other assets recorded at the date of the
close of the transaction was increased by $16.7 million, representing $4.8
million of goodwill and $11.9 million of identified intangible assets. See Note
14 of Notes to Consolidated
27
<PAGE> 29
Financial Statements. The effect of the restatement on the Company's previously
reported statement of operations data is as follows (in thousands except per
share data):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, NINE MONTHS ENDED DECEMBER 31,
1996 1996
------------------------------- ----------------------------------
PREVIOUSLY REPORTED RESTATED PREVIOUSLY REPORTED RESTATED
------------------- -------- ------------------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Gross profit......................... $ 41,889 $ 40,889 $36,437 $36,057
Operating income (loss).............. (11,775) (9,435) 14,152 12,656
Net income (loss).................... (17,412) (15,132) 10,536 9,026
</TABLE>
CHANGE IN INDEPENDENT PUBLIC ACCOUNTANTS
On August 1, 1997, the Audit Committee of the Board of Directors of the
Company approved the engagement of Arthur Andersen LLP, San Jose, California as
independent public accountants to audit and report on the financial statements
of the Company and its subsidiaries for the year ended March 31, 1998. On August
5, 1997, Ernst & Young advised the Company that it would not seek re-election at
the Company's next Annual General Meeting, which was held on October 14, 1997.
Accordingly, the engagement of Ernst & Young terminated at the time of the
Annual General Meeting. The nomination of Arthur Andersen LLP as the Company's
independent public accountants was approved by the holders of a majority of the
Company's Ordinary Shares at the Company's Annual General Meeting.
There were no disagreements with Ernst & Young on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures with respect to the Company's consolidated financial statements for
the fiscal years ended March 31, 1995, 1996 and 1997 or through October 14, 1997
which, if not resolved to the former auditors' satisfaction, would have caused
them to make reference to the subject matter of the disagreement in connection
with their report.
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>
SIX MONTHS
FISCAL YEAR ENDED ENDED
MARCH 31, SEPTEMBER 30,
------------------------- ---------------
1995 1996 1997 1996 1997
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................... 90.5 90.9 89.8 89.2 89.9
----- ----- ----- ----- -----
Gross profit....................................... 9.5 9.1 10.2 10.8 10.1
Selling, general and administrative expenses....... 4.8 4.2 5.5 5.1 4.9
Goodwill and intangible assets amortization........ 0.4 0.2 0.5 0.5 0.5
Provision for plant closings....................... -- 0.3 1.2 -- --
Acquired in-process research and development....... -- 6.5 -- -- --
----- ----- ----- ----- -----
Operating income (loss).................. 4.3 (2.1) 3.0 5.2 4.7
Net interest expense............................... (0.4) (0.5) (0.8) (0.8) (1.7)
Merger expenses.................................... (0.3) -- -- -- --
Foreign exchange gain (loss)....................... (0.1) 0.2 0.3 0.1 0.2
Income (loss) from associated company.............. (0.3) -- -- -- 0.1
Other income (expense)............................. -- (0.1) (0.6) 0.1 --
----- ----- ----- ----- -----
Income (loss) before income taxes........ 3.2 (2.5) 1.9 4.6 3.3
Provision for income taxes......................... 0.6 0.9 0.4 0.7 0.4
----- ----- ----- ----- -----
Net income (loss)........................ 2.6% (3.4%) 1.5% 3.9% 2.9%
===== ===== ===== ===== =====
</TABLE>
28
<PAGE> 30
Net Sales
Substantially all of the Company's net sales have been derived from the
manufacture and assembly of products for OEM customers. Net sales for the six
months ended September 30, 1997 increased 69.3% to $407.0 million from $240.4
million for the six months ended September 30, 1996. The increase in sales for
the six months was primarily due to (i) sales to Ericsson following the March
27, 1997 acquisition of the Karlskrona Facilities, (ii) an increase in sales to
certain existing customers including Advanced Fibre Communications, Microsoft
and Thermoscan. This increase was partially offset by reduced sales to certain
customers, including Microcom, Visioneer, US Robotics and Global Village. See
"Risk Factors -- Customer Concentration; Dependence on Electronics Industry" and
"Risk Factors -- Risks of Karlskrona Acquisition."
The Company's largest customers during the six month period ending
September 30, 1997 were Ericsson and Advanced Fibre Communications. Net sales to
Ericsson for the six month period accounted for approximately 30% of net
consolidated sales while net sales to Advanced Fibre Communications for the six
month period accounted for approximately 11% of net consolidated sales for the
periods. No other customer accounted for more than 10% of consolidated net sales
for the six month periods ending September 30, 1997.
Net sales in fiscal 1997 increased 9.4% to $490.6 million from $448.3
million in fiscal 1996. This increase was primarily due to higher sales to
existing customers, including U.S. Robotics, Microsoft, Advanced Fibre
Communications and Braun/Thermoscan, sales to new customers such as Cisco and
Auspex, and the inclusion of Astron's sales following its acquisition in
February 1996. This increase was partially offset by reduced sales to certain
existing customers, including Visioneer, Apple Computer, Houston Tracker
Systems, Logitech, Voice Powered Technology and Fast Multimedia. The Company
believes that the reduction in sales to these customers was due in part to
reductions in these customers' sales to end-users. See "Risk Factors -- Rapid
Technological Change."
Net sales in fiscal 1996 increased 88.9% to $448.3 million from $237.4
million in fiscal 1995. This increase was primarily the result of 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. This was partially offset by a significant
decline in sales to IBM due to IBM's efforts to consolidate more of its
manufacturing business internally.
Gross Profit
Gross profit varies from period to period and is affected by, among other
things, product mix, component costs, product life cycles, unit volumes,
startup, expansion and consolidation of manufacturing facilities, pricing,
competition and new product introductions. Gross profit margin decreased to
10.1% for the six months ended September 30, 1997 as compared to 10.4% for the
six months ended September 30, 1996. The decrease in the gross profit margin for
the six months ended September 30, 1997 was mainly due to increased depreciation
and other fixed expenses as the Company commenced volume production in the new
facilities in Doumen, China and Mexico. The decrease in the gross profit margin
was offset slightly by the inclusion of the Sweden facility which manufactures
high rmaragin products. In addition, the Company has begun manufacturing several
products on a consignment basis. Consignment projects typically have higher
gross profit margin than turnkey projects.
Gross margin increased to 10.2% in fiscal 1997 compared to 9.1% in fiscal
1996. The increase was mainly attributable to (i) the inclusion of Astron's
printed circuit board business, which has historically had a relatively higher
gross profit margin than the Company, (ii) the concentration of more sales in
the Company's facility in China which has a lower manufacturing cost compared to
the Company's facilities in other locations, and (iii) increased sales,
resulting in increased labor and overhead absorption. This benefit was partially
offset by underutilization of the nCHIP semiconductor fabrication facility and
the Company's Texas facility (which has been closed), and the related inventory
write-offs. See "Risk Factors -- Management of Expansion and Consolidation."
29
<PAGE> 31
Gross profit margin declined slightly to 9.1% 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 semiconductor fabrication
facility. The decrease in gross profit margin was also attributable to a
reduction in certain selling prices in order to remain competitive.
Cost of sales included research and development costs of approximately
$561,000 and $458,000 in the six months ended September 30, 1997 and 1996,
respectively, and $913,000 and $153,000 in fiscal 1997 and 1996, respectively.
The increase from fiscal 1996 to fiscal 1997 was primarily due to the inclusion
of Astron's results following its acquisition in February 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the six months ended
September 30, 1997 increased to $20.0 million from $12.2 million for the six
months ended September 30, 1996 but decreased as a percentage of net sales to
4.9% for the six months ended September 30, 1997 from 5.1% for the six months
ended September 30, 1996. The increase in selling expenses were mainly due to
the addition of new sales personnel in the United States and Europe and the
inclusion of Fine Line's selling expenses; the increase in general and
administrative expenses is primarily due to the inclusion of the operations of
the Karlskrona facilities; and the increase in corporate expenses is primarily
due to the growth in infrastructure including the hiring of additional internal
support, personnel and increases in related department expenses.
Selling, general and administrative expenses in fiscal 1997 increased to
$26.8 million from $18.8 million in fiscal 1996 and increased as percentage of
net sales to 5.5% in fiscal 1997 from 4.2% in fiscal 1996. The increase was
mainly due to: (i) the inclusion of Astron's selling and general administrative
expenses for all of fiscal 1997; (ii) increased consulting fees; and (iii)
increased sales and marketing expenses. The increased consulting fees resulted
from financial consulting services provided by two banks for a total of $719,000
in fiscal 1997. The Company also recorded $362,000 in March 1997 for
compensation for management services paid to a new executive officer who was
formerly a key employee of Ericsson in Sweden and who joined the Company upon
the acquisition of the Karlskrona Facilities.
Selling, general and administrative expenses in fiscal 1996 increased to
$18.8 million from $11.5 million in fiscal 1995, but decreased as percentage of
net sales to 4.2% in fiscal 1996 from 4.8% 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 the 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.
Goodwill and Intangible Assets Amortization
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 over the estimated life of the benefits
received, which ranges from three to twenty-five years. Goodwill and intangible
assets amortization for the six months ended September 30, 1997 increased to
$1.7 million from $1.3 million for the six months ended September 30, 1996.
Goodwill amortization increased to $989,000 in fiscal 1997 from $739,000 in
fiscal 1996 and intangible asset amortization increased to $1.6 million in
fiscal 1997 from $544,000 in fiscal 1996. These increases were due to the
amortization of additional goodwill and intangible assets which arose from the
Astron acquisition in 1996. In fiscal 1997, the Company recognized approximately
$8.5 million of additional goodwill, as a result of the acquisition of the 40%
interest in FICO and the Astron earnout payment of $6.25 million (which was
accrued to goodwill in March 1997 when the conditions to payment were resolved),
partially offset by the effect of the $1.0 million reduction in the payment due
in June 1998 to an affiliate of Stephen Rees. See "-- Overview" and Note 14 of
Notes to Consolidated Financial Statements.
Goodwill amortization increased to $739,000 in fiscal 1996 from $510,000 in
fiscal 1995 primarily due to the goodwill from the Company's acquisition of A&A
and Astron. Intangible assets amortization increased to $544,000 in fiscal 1996
from $245,000 in fiscal 1995 primarily due to the acquisition of A&A and Astron.
30
<PAGE> 32
In the second quarter of fiscal 1998, the Company revised its estimate of
the useful lives of certain long-lived intangible assets (consisting of
goodwill, customer lists and trademarks and tradenames) associated with the
Astron acquisition, reducing the useful lives from 20 and 25 years to 10 years.
This revision will increase the Company's amortization expense by approximately
$279,000 per quarter beginning in the second quarter of fiscal 1998.
Provision for Plant Closings
The provision for plant closings of $5.9 million in fiscal 1997 consists of
the costs incurred in closing the Texas facility, downsizing the Singapore
manufacturing operations and writing off obsolete equipment and incurring
certain severance obligations at the nCHIP semiconductor fabrication facility.
The $5.9 million provision includes $2.8 million for the write-off of obsolete
equipment, and $560,000 for severance payments to former employees, at the nCHIP
and Texas facilities. The Texas facility had been primarily dedicated to
production for Global Village Communications and Apple Computer, to whom the
Company does not anticipate making substantial sales in future periods. The
nCHIP semiconductor fabrication facility was primarily dedicated to producing
PCBs for nCHIP's MCMs, and the Company has transferred these operations to a
third party. The provision also includes $2.0 million for severance payments and
$500,000 for the write-off of fixed assets in the Singapore manufacturing
facilities in connection with the shift of manufacturing operations to lower
cost manufacturing locations. See Note 11 of Notes to Consolidated Financial
Statements.
The provision for plant closings of $1.3 million in fiscal 1996 was
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.
Production from the Shekou facility has been moved to the Company's plant in
Xixiang, China.
Acquired In-Process Research and Development
In June 1997, the Company obtained an independent valuation of certain of
the assets of Astron and the In-Process R&D as of the date of Astron's
acquisition. This valuation determined that the fair value of the In-Process R&D
was $29.0 million. Accordingly, the Company adjusted the amount of In-Process
R&D written off in fiscal 1996 to $29.0 million. See "-- Overview" and
"-- Recent Changes in Accounting for Astron Acquisition."
Net Interest Expense
Net interest expense increased to $7.1 million for the six months ended
September 30, 1997 from $2.1 million for the six months ended September 30,
1996. The increase was primarily due to increased bank borrowings to finance the
Karlskrona Acquisition capital expenditures. The Company anticipates that its
interest expense will increase in future periods as a results of borrowings
under its credit facility and its issuance in October 1997 of $150.0 million
principal amount of Senior Subordinated Notes. See "-- Liquidity and Capital
Resources" and "Risk Factors -- Significant Leverage; Incurrence of Additional
Senior Debt."
Net interest expense increased to $3.9 million in fiscal 1997 from $2.4
million in fiscal 1996 mainly due to increases in interest expense in connection
with additional indebtedness used to finance working capital requirements, to
finance acquisitions and to purchase machinery and equipment for capacity
expansion. The Company also recorded approximately $363,000 of interest expense
in fiscal 1997 related to the cash portion of the Company's obligations to an
affiliate of Stephen Rees, a former shareholder and the Chairman of Astron,
pursuant to the Services Agreement. See "-- Overview."
Net interest expense increased to $2.4 million in fiscal 1996 from $774,000
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.
31
<PAGE> 33
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, which was
accounted for as a pooling of interest.
Foreign Exchange Gain (Loss)
Foreign exchange gain increased to $944,000 in the six months ended
September 30, 1997 from $218,000 in the six months ended September 30, 1996. The
increase in the exchange gains for the six months ended September 30, 1997 was
mainly due to the strengthening of the U.S. dollar against Asian currencies and
the Swedish kronor. Foreign exchange gain (loss) increased to $1.2 million in
fiscal 1997 from $872,000 in fiscal 1996 and increased to a gain of $872,000 in
fiscal 1996 from a loss of $303,000 in fiscal 1995. In each case, the changes
resulted from changes in the rates of exchange between the U.S. dollar and local
currencies of the Company's international operations such as the Malaysia
ringgit and Singapore dollar. See Note 2 of Notes to Consolidated Financial
Statements.
The Company has historically not actively engaged in substantial exchange
rate hedging activities. However, in August 1997 the Company entered into
forward exchange contracts with respect to the kronor to reduce foreign exchange
risks arising from a kronor-denominated intercompany loan. These contracts were
settled in September 1997 and did not have a material effect on the Company's
results of operations or cash flow. The Company from time to time may enter into
forward exchange contracts or other hedging activities with respect to other
specific, fixed foreign currency obligations. Because the Company only hedges
fixed obligations, the Company does not expect that these hedging activities
will have a material effect on its results of operations or cash flow. However,
there can be no assurance that the Company will engage in any hedging activities
in the future or that any of its hedging activities will be successful.
Income (Loss) from Associated Company
The Company acquired a 40% interest in FICO in December 1996. According to
the equity method of accounting, the Company did not recognize revenue from
sales by FICO, but based on its ownership interest recognized 40% of the net
income or loss of the associated company. The Company has recorded its 40% share
of FICO's post-acquisition net income, amounting to $241,000 in fiscal 1997 and
$650,000 in the six months ended September 30, 1997.
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 $1.0 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.
Other Income (Expense)
Other expense increased to $2.7 million in fiscal 1997 from $398,000 in
fiscal 1996, mainly due to a $3.2 million write-off of publicly traded common
stock received from a customer in 1997 in payment of $3.2 million in accounts
receivable. As a result of a significant decline in the market value of this
common stock following its receipt by the Company, this common stock was
subsequently deemed to be permanently impaired in 1997 resulting in a $3.2
million increase in other expense. Other expense in fiscal 1997 also included
bank commitment fees of $750,000 written off in March 1997 when the bank's
commitment expired unused. See "-- Liquidity and Capital Resources." These
increased expenses in 1997 were offset by $898,000 received in fiscal 1997 under
the Company's business interruption insurance policy as a result of an April
1996 fire at its facilities in Doumen, China and $276,000 of grants to the
Company from the local government in Wales.
32
<PAGE> 34
Other income (expense) decreased from income of $34,000 in fiscal 1995 to
an expense of $398,000 in fiscal 1996.
Provision for Income Taxes
The Company is structured as a holding company, conducting its operations
through manufacturing and marketing subsidiaries in Austria, China, Hungary,
Malaysia, Mauritius, Mexico, The Netherlands, Singapore, Sweden, the United
Kingdom, and the United States. Each of these subsidiaries is subject to
taxation in the country in which it has been formed. The Company's Asian
manufacturing subsidiaries have at various times been granted certain tax relief
in each of these countries, resulting in lower taxes than would otherwise be the
case under ordinary tax rates. See Note 7 of Notes to Consolidated Financial
Statements.
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 pre-tax
income. Losses incurred by any subsidiary or by the holding company are not
deductible by the entities incorporated in other countries in the calculation of
their respective local taxes. For example, the charge for the closing of the
Texas facility in fiscal 1997 was incurred by a U.S. subsidiary that did not
have income against which this charge could be offset. The ordinary corporate
tax rates for calendar 1997 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 U.S. and U.K. subsidiaries are subject to ordinary corporate tax rates
of 35% and 33% respectively. However, these tax rates did not have any material
impact on the Company's taxes in fiscal 1997 due to the operating losses of
these two subsidiaries in this period. The Company's Swedish subsidiary, which
began operation on March 27, 1997 with the acquisition of the Karlskrona
Facilities, will be subject to an ordinary corporate tax rate of 28%.
The Company's consolidated effective tax rate was 12.3% for the six months
ended September 30, 1997 compared to 14.8% in the six months ended September 30,
1996 and 22.9% in fiscal 1997. In the three months ended June 30, 1997, the
Company reduced the effective tax rate on certain of its subsidiaries that had
certain profitable operations by applying net loss carry forwards. In addition,
the Company has reduced its effective tax rate by shifting some of its
manufacturing operations from Singapore, which has an ordinary corporate tax
rate of 26%, to locations having lower corporate tax rates. The provision for
plant closings of $1.3 million and the $29.0 million write-off of In-Process R&D
in fiscal 1996 resulted in aggregate net losses for that year, but the Company
incurred taxes on the profitable operations of certain of its subsidiaries. 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 20%.
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. The Company's
Singapore subsidiary was granted an investment allowance incentive in respect of
approved fixed capital expenditures subject to certain conditions. These
allowances have been utilized to reduce its taxable income since fiscal 1991,
and were fully utilized at the end of fiscal 1996. The Company's investments in
its plants in Xixiang and Doumen, China fall under the "Foreign Investment
Scheme" which entitles the Company to apply for a five year tax incentive. The
Company obtained the tax incentive for the Doumen plant in December 1995 and the
Xixiang plant in October 1996. With the approval, the Company's tax rates on
income from these facilities during the incentive period will be 0% in years 1
and 2 and 7.5% in years 3 through 5, commencing in the first profitable year. 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 0%. The Company's Malaysian manufacturing subsidiary has
obtained a five year pioneer certificate from the relevant authority that
provides a tax exemption on manufacturing income from certain products 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
tax allowances and losses carry forward. The Company's facility in Shekou,
China, which was closed in fiscal
33
<PAGE> 35
1996, was located in a "Special Economic Zone" and was an approved "Product
Export Enterprise" that qualified for a special corporate income tax rate of
10%.
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 worldwide effective tax rate 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 would increase and its results of operations and cash flow would be
adversely affected. In addition, the expansion by the Company of its operations
in North America and Northern Europe may increase its worldwide effective tax
rate. See "Risk Factors -- Risk of Increased Taxes."
At March 31, 1997, the Company had net operating loss carryforwards of
approximately $30.7 million for U.S. federal income tax purposes which will
expire between 2003 and 2011 if not previously utilized. Utilization of the U.S.
net operating loss carryforwards may be subject to an annual limitation due to
the change in ownership rules provided by the Internal Revenue Code of 1986.
This limitation and other restrictions provided by the Internal Revenue Code of
1986 may reduce the net operating loss carryforward such that it would not be
available to offset future taxable income of the U.S. subsidiary. At March 31,
1997, the Company had net operating loss carryforwards of approximately $10.0
million and $632,000 in the U.K. and Malaysia, respectively. The utilization of
these net operating loss carryforwards is limited to the future operations of
the Company in the tax jurisdictions in which such carryforwards arose. These
losses carryforward indefinitely. See Note 8 of Notes to Consolidated Financial
Statements.
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 due to a variety of factors. These factors include, among other
things, timing of orders, the short-term nature of most customers' purchase
commitments, volume of orders relative to the Company's capacity, customers'
announcement and introduction and market acceptance 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, timing of acquisitions and related expenses,
and changes or anticipated changes in economic conditions. In addition, the
Company's net sales are adversely affected by the observance of local holidays
during the fourth fiscal quarter in Malaysia and China, reduced production
levels in Sweden in July, and the reduction in orders by certain customers in
the fourth quarter reflecting a seasonal slowdown following the Christmas
holiday. 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. In future periods, the Company's net
sales or results of operations may be below the expectations of public market
analysts and investors. In such event, the price of the Company's Ordinary
Shares would likely be materially adversely affected. See "Risk
Factors -- Variability of Customer Requirements and Operating Results."
BACKLOG
The Company's backlog was $147.5 million at September 30, 1997 and $81.0
million at September 30, 1996. Backlog consists of contracts or purchase orders
with delivery dates scheduled within the next sixty days as customers have the
right to typically change their orders beyond 60 days. Because of the timing of
orders, overall decreasing lead times and delivery intervals, customer and
product mix and the possibility of customer
34
<PAGE> 36
changes in delivery schedules, the Company's backlog as of any particular date
is not indicative of actual sales for any succeeding period.
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, the sale of the
Notes and lease financing of capital equipment. In March 1997, the Company
terminated its $48.0 million line of credit from several banks and obtained a
new $175.0 million credit facility. At September 30, 1997 the Company had cash
balances totaling $17.8 million, outstanding bank borrowings of $147.0 million
and an aggregate of $9.0 million available for borrowing under the Credit
Facility. See "Risk Factors -- Significant Leverage; Incurrence of Additional
Senior Debt."
Net cash provided by operating activities was $19.1 million for the six
months ended September 30, 1997, consisting of $58.8 million of cash provided by
net income, depreciation, increases in accounts payable and other sources,
offset by $39.7 million of cash used for increases in inventory and accounts
receivable and other operating activities. Depreciation expense was $9.7 million
and $6.5 million for the six months ended September 30, 1997 and September 30,
1996, respectively. Net cash provided by operating activities was $17.9 million
for the six months ended September 30, 1996, consisting of $30.6 million of cash
provided by net income before depreciation and including decreases in accounts
receivable, offset by $12.7 million of cash used for operating activities,
primarily payments of accounts payable.
Net cash provided by operating activities in fiscal 1997 was $46.7 million,
consisting primarily of net income, depreciation, provision for plant closing
and decreases in accounts receivable.
Net cash used for operating activities in fiscal 1996 was $710,000,
consisting primarily of a net loss of $15.1 million and increases in accounts
receivable and inventories, largely offset by the $29.0 million write-off of
In-Process R&D, as well as by depreciation, amortization and allowance for
doubtful debt and obsolescence.
Accounts receivable, net of allowance for doubtful accounts increased to
$90.3 million at September 30, 1997 from $65.3 million at March 31, 1997. The
increase in accounts receivable was primarily due to increased sales in the
second quarter of fiscal 1998. Inventories increased to $112.9 million at
September 30, 1997 from $106.6 million at March 31, 1997. The increase in
inventories was mainly a result of increased purchases of material to support
the growing sales. The Company's allowance for doubtful accounts decreased from
$5.7 million at March 31, 1997 to $5.1 million at September 30, 1997. The
Company's allowance for inventory obsolescence decreased from $6.3 million at
March 31, 1997 to $6.0 million at September 30, 1997. The decreases in the
allowances were due to the write-offs of accounts receivable and inventories
during the six months ended September 30, 1997.
Accounts receivable, net of allowance for doubtful accounts, decreased to
$65.3 million at March 31, 1997 from $78.1 million at March 31, 1996. The
decrease in accounts receivable was primarily due to improved collection of
accounts receivable during fiscal 1997. Inventories increased to $106.6 million
at March 31, 1997 from $52.6 million at March 31, 1996. The increase in
inventories was mainly a result of the acquisition of the $55.0 million of
inventories at the Karlskrona Facilities. The Company's allowances for doubtful
accounts increased to $5.7 million at March 31, 1997 from $3.6 million at March
31, 1996. The Company's allowance for inventory obsolescence increased to $6.2
million at March 31, 1997 from $4.6 million at March 31, 1996. The increases in
the allowances were due to the increases in sales and inventories during fiscal
1997 and the $3.2 million provision for doubtful debts, and write-off shares
taken in payment of receivables, related to one specific customer and inventory
exposure relating to the closing of the Texas facility.
Accounts receivable, net of allowance for doubtful accounts, increased to
$78.1 million at March 31, 1996 from $44.3 million at March 31, 1995 and
inventories increased to $52.6 million at March 31, 1996 from $30.2 million at
March 31, 1995. The increase in accounts receivable and inventories was mainly
due to the 88.9% increase in sales during fiscal 1996. 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's allowance for inventory
35
<PAGE> 37
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 $1.0 million provision for
inventory exposure relating to the closing of the satellite receiver product
line in one of the Company's Malaysia plants.
Net cash used for investing activities during the six months ended
September 30, 1997 was $54.2 million, consisting primarily of expenditures for
new and expanded facilities, including the construction of new facilities in
Doumen, China, Guadalajara, Mexico and San Jose, California and the acquisition
of machinery and equipment in the San Jose, California and Karlskrona, Sweden
facilities. Net cash used for investing activities during the six months ended
September 30, 1996 was $12.4 million, consisting primarily of equipment
acquisitions and building construction.
Net cash used for investing activities in fiscal 1997 was $112.0 million,
consisting primarily of $82.4 million for the acquisition of the Karlskrona
Facilities, and $27.0 million of expenditures for machinery and equipment in the
Company's, China, Mexico and California manufacturing facilities and $3.0
million cash paid in November for the 40% interest in FICO.
Net cash used for investing activities in fiscal 1996 was $29.0 million,
consisting primarily of $15.8 million of expenditures for machinery and
equipment in the Company's Texas, China and California manufacturing facilities
as well as $15.2 million for the cash portion of the purchase prices paid in
fiscal 1996 for the A&A and Astron acquisitions.
Net cash provided by financing activities was $29.9 million for the six
months ended September 30, 1997 and $2.2 million for the six months ended
September 30, 1996, in each case consisting primarily of proceeds from bank
borrowings offset in part by a reduction in capital lease obligations. Bank
borrowings increased from $18.0 million at September 30, 1996 to $147.0 million
at September 30, 1997 due primarily to bank borrowings to fund the purchase
price for the Karlskrona Facilities.
Net cash provided by financing activities in fiscal 1997 was $82.4 million,
consisting primarily of bank borrowings of $152.8 million and capital lease
financing. This was partially offset by $56.0 million in repayments of bank
borrowings, $10.5 million in repayments of notes to Astron's ex-shareholders and
$8.0 million in repayments of capital lease obligations.
Net cash provided by financing activities in fiscal 1996 was $31.6 million,
consisting primarily of $22.3 million from the sale of 1,000,000 newly issued
Ordinary Shares and net bank borrowings of $12.3 million.
During the quarter ended March 31, 1997, the Company obtained a commitment
for a new $100.0 million credit facility for which it paid commitment fees of
$750,000. Ultimately, however, the Company required a larger credit facility in
order to fund the acquisition of the Karlskrona Facilities. As a result, the
$100.0 million facility was never consummated and expired during the quarter
unused. Instead of consummating this $100.0 million credit facility and
borrowing under this commitment, the Company entered into the $175.0 million
Credit Facility in March 1997 to provide funding for the acquisition of the
Karlskrona Facilities, for capital expenditures and for general working capital.
The Company paid a separate $2.2 million fee for the Credit Facility, which,
together with other direct costs of the facility, was capitalized and is being
amortized over the term of the Credit Facility.
The Credit Facility consists of two loan agreements. Under the Credit
Facility, subject to compliance with certain financial ratios and the
satisfaction of customary borrowing conditions, the Company borrowed a $70.0
million term loan on March 27, 1997 and the Company and its United States
subsidiary may borrow up to an aggregate of $105.0 million of revolving credit
loans. The revolving credit loans are subject to a borrowing base equal to 70%
of consolidated accounts receivable and 20% of consolidated inventory. As of
September 30, 1997, $77.0 million of revolving credit loans and a $70.0 million
term loan were outstanding, and bore interest at a variable rate equal, as of
September 30, 1997, to approximately 8.4% per annum. Loans under the revolving
credit facility will mature in March 2000. Loans to the Company are guaranteed
by certain of its subsidiaries and loans to the Company's United States
subsidiary are guaranteed by the Company and by certain of the Company's
subsidiaries. The Credit Facility is secured by a lien on substantially all
accounts
36
<PAGE> 38
receivable and inventory of the Company and its subsidiaries, as well as a
pledge of the Company's shares in certain of its subsidiaries. The Credit
Facility contains a number of operating and financial covenants and provisions.
The Company was in compliance with all financial covenants and provisions as of
September 30, 1997.
Subsequent to September 30, 1997, the Company completed the Equity
Offering, selling 2,185,000 Ordinary Shares for net proceeds of approximately
$96.0 million. On October 15, 1997, the Company also completed the sale of
$150.0 million principal amount of the Notes. The proceeds from both equity and
debt offerings were used to pay off the $70.0 million term loan and the $77.0
million outstanding balance of the revolving credit facility. The Company
intends to continue to borrow revolving credit loans under the Credit Facility,
and anticipates increasing the aggregate principal amount of revolving credit
loans that may be made under the Credit Facility (although no assurances can be
given as to the availability or amount of any such increase). See "Risk
Factors -- Increased Leverage" and "Description of the Credit Facility."
The Company's capital expenditures in the first six months of fiscal 1998
were approximately $46.3 million and the Company anticipates that its capital
expenditures in fiscal 1998 will be approximately $65.0 million, primarily
relating to the development of new and expanded facilities in San Jose,
California, Guadalajara, Mexico and Doumen, China. In addition, the Company
anticipates expending from $7.0 million to $15.0 million in fiscal 1998 and 1999
to implement the new management information system, and anticipates funding
these expenditures with cash from operations and borrowings under the Credit
Facility. The Company also expended cash in the fourth quarter of fiscal 1997
and will be required to expend cash in fiscal 1998 pursuant to the terms of the
Astron acquisition. The Company paid an earnout of $6.25 million in cash in
April 1997, and will be required to make a principal payment of $5.0 million in
February 1998, pursuant to the terms of a note issued by it in connection with
the Astron acquisition. The Company is also required to make a $14.0 million
payment to an entity affiliated with Stephen Rees in June 1998. Of this amount,
$5.0 million is payable in cash and $9.0 million is payable in cash or, at the
option of the Company, in Ordinary Shares, and the Company intends to pay the
$9.0 million portion in Ordinary Shares. The Company also anticipates that its
working capital requirements will increase in order to support anticipated
volumes of business. Future liquidity needs will depend on, among other factors,
the timing of expenditures by the Company on new equipment, levels of shipments
by the Company and changes in volumes of customer orders. The Company believes
that the existing cash balances, together with anticipated cash flow from
operations, net proceeds of the Offering and amounts available under the Credit
Facility, will be sufficient to fund its operations through fiscal 1998.
37
<PAGE> 39
BUSINESS
The Company is a provider of advanced contract manufacturing services to
OEMs in the communications, computer, consumer electronics and medical device
industries. Flextronics offers a full range of services including product
design, PCB fabrication and assembly, materials procurement, inventory
management, final system assembly and test, packaging and distribution. The
components, subassemblies and finished products manufactured by Flextronics
incorporate advanced interconnect, miniaturization and packaging technologies,
such as SMT, MCM, COB, BGA and miniaturized gold-plated PCB technologies. The
Company's strategy is to use its global manufacturing capabilities and advanced
technological expertise to provide its customers with a complete manufacturing
solution, highly responsive and flexible service, accelerated time to market and
reduced production costs. The Company targets leading OEMs in growing vertical
markets with which it believes it can establish long-term relationships, and
serves its customers on a global basis from its strategically located facilities
in North America, East Asia and Northern Europe. The Company's customers include
Advanced Fibre Communications, Ascend Communications, Braun/ThermoScan, Cisco
Systems, Diebold, Ericsson, Harris DTS, Lifescan (a Johnson & Johnson company),
Microsoft, Philips Electronics and U.S. Robotics.
INDUSTRY OVERVIEW
Many OEMs in the electronics industry are increasingly utilizing contract
manufacturing services in their business and manufacturing strategies, and are
seeking to outsource a broad range of manufacturing and related engineering
services. Outsourcing allows OEMs to take advantage of the manufacturing
expertise and capital investments of contract manufacturers, thereby enabling
OEMs to concentrate on their core competencies. According to an independent
industry study, these trends and overall growth in OEMs' markets have resulted
in a compound annual growth rate in the electronics contract manufacturing
industry of over 30% from 1992 through 1996, to approximately $60.0 billion.
According to this study, the industry is expected to grow to approximately
$110.0 billion by 1999. OEMs utilize contract manufacturers to:
Reduce Production Costs. The competitive environment for OEMs requires
that they achieve a low-cost manufacturing solution, and that they quickly
reduce production costs for new products. Due to their established
manufacturing expertise and infrastructure, contract manufacturers can
frequently provide OEMs with higher levels of responsiveness, increased
flexibility and reduced overall production costs than in-house
manufacturing operations. The production scale, infrastructure, purchasing
volume and expertise of leading contract manufacturers can further enable
OEMs to reduce costs earlier in the product life cycle.
Accelerate Time to Market. Rapid technological advances and shorter
product life cycles require OEMs to reduce the time required to bring a
product to market in order to remain competitive. By providing engineering
services, established infrastructure and advanced manufacturing expertise,
contract manufacturers can help OEMs shorten their product introduction
cycles.
Access Advanced Manufacturing and Design Capabilities. As electronic
products have become smaller and more technologically advanced,
manufacturing processes have become more automated and complex, making it
increasingly difficult for OEMs to maintain the design and manufacturing
expertise necessary to remain competitive. Contract manufacturers enable
OEMs to gain access to advanced manufacturing facilities, packaging
technologies and design expertise.
Focus Resources. Because the electronics industry is experiencing
increased competition and technological change, many OEMs are focusing
their resources on activities and technologies where they add the greatest
value. Contract manufacturers that offer comprehensive services allow OEMs
to focus on their core competencies.
Reduce Investment. As electronic products have become more
technologically advanced, internal manufacturing has required significantly
increased investment for working capital, capital equipment, labor, systems
and infrastructure. Contract manufacturers enable OEMs to gain access to
advanced, high
38
<PAGE> 40
volume manufacturing capabilities without making the capital investments
required for internal production.
Improve Inventory Management and Purchasing Power. OEMs are faced with
increasing challenges in planning, procuring and managing their inventories
efficiently due to frequent design changes, short product life cycles,
large investments in electronic components, component price fluctuations
and the need to achieve economies of scale in materials procurement.
Contract manufacturers' inventory management expertise and volume
procurement capabilities can reduce OEM production and inventory costs,
helping them respond to competitive pressures and increase their return on
assets.
Access Worldwide Manufacturing Capabilities. OEMs are increasing their
international activities in an effort to lower costs and access foreign
markets. Contract manufacturers with worldwide capabilities are able to
offer such OEMs a variety of options on manufacturing locations to better
address their objectives regarding costs, shipment location, frequency of
interaction with manufacturing specialists and local content requirements
of end-market countries. In addition, OEMs in Europe and other
international markets are increasingly recognizing the benefits of
outsourcing.
STRATEGY
The Company's objective is to enhance its position as a provider of
advanced contract manufacturing and design services to OEMs worldwide. The
Company's strategy to meet this objective includes the following key elements:
Leverage Global Presence. The Company has established a manufacturing
presence in the world's major electronics markets -- Asia, North America
and Europe -- in order to serve the increasing outsourcing needs of
regional OEMs and to provide the global, large scale capabilities required
by larger OEMs. The Company has recently substantially expanded its
manufacturing operations by expanding its integrated campus in Doumen,
China, constructing a new manufacturing campus in Guadalajara, Mexico,
adding facilities in San Jose, California, and acquiring the Karlskrona
Facilities in Karlskrona, Sweden and acquiring Neutronics, with
manufacturing operations in Austria and Hungary. By increasing the scale
and the scope of the services offered in each site, the Company believes
that it can better address the needs of leading OEMs that are increasingly
seeking to outsource high volume production of advanced products.
Provide a Complete Manufacturing Solution. The Company believes that
OEMs are increasingly requiring a wider range of advanced services from
contract manufacturers. Building on its integrated engineering and
manufacturing capabilities, the Company provides its customers with
services ranging from initial product design and development and prototype
production to final product assembly and distribution to OEMs' customers.
The Company believes that this provides greater control over quality,
delivery and cost, and enables the Company to offer its customers a
complete cost-effective solution.
Provide Advanced Technological Capabilities. Through its continuing
investment in advanced packaging and interconnect technologies (such as
MCM, COB, BGA and miniature gold-finished PCB capabilities), as well as its
investment in advanced design and engineering capabilities (such as those
offered by Fine Line), the Company is able to offer its customers a variety
of advanced design and manufacturing solutions. In particular, the Company
believes that its ability to meet growing market demand for miniaturized
electronic products will be critical to its ongoing success, and has
developed and acquired a number of innovative technologies to address this
demand.
Accelerate Customers' Time to Market. The Company's engineering
services group provides integrated product design and prototyping services
to help customers accelerate their time to market for new products. By
participating in product design and prototype development, the Company
often reduces the costs of manufacturing the product. In addition, by
designing products to improve manufacturability and by participating in the
transition to volume production, the Company believes that its engineering
services group can significantly accelerate the time to volume production.
By working closely with its suppliers and customers throughout the design
and manufacturing process, the Company believes that it
39
<PAGE> 41
can enhance responsiveness and flexibility, increase manufacturing
efficiency and reduce total cycle times.
Increase Efficiency Through Logistics. The Company is streamlining and
simplifying production logistics at its large, strategically located
facilities to decrease the costs associated with the handling and managing
of materials. The Company has incorporated suppliers of custom components
in its facilities in China and Mexico to further reduce material and
transportation costs. The Company has established warehousing capabilities
from which it can ship products into customers' distribution channels.
Target Leading OEMs in Growing Vertical Markets. The Company has
focused its marketing efforts on fast growing industry sectors that are
increasingly outsourcing manufacturing operations, such as the
communications, computer, consumer electronics and medical device
industries. The Company seeks to maintain a balance of customers among
these industries, establishing long-term relationships with leading OEMs to
become an integral part of their operations.
There can be no assurance that the Company's strategy, even if successfully
implemented, will reduce the risks associated with the Company's business. See
"Risk Factors."
CUSTOMERS
The Company's customers consist of a select group of OEMs in the
communications, computer, consumer electronics and medical device industries.
Within these industries, the Company's strategy is to seek long-term
relationships with leading companies that seek to outsource significant
production volumes of complex products. The Company has increasingly focused on
sales to larger companies and to customers in the communications industries. In
fiscal 1997 and the first six months of fiscal 1998, the Company's five largest
customers accounted for approximately 46% and 63%, respectively, of net sales.
The loss of one or more major customers would have a material adverse effect on
the Company, its results of operations, prospects or debt service ability. See
"Risk Factors -- Customer Concentration; Dependence on Electronics Industry" and
"-- Variability of Customer Requirements and Operating Results."
The following table lists in alphabetical order certain of the Company's
largest customers with which the Company expects to continue to conduct
significant business in fiscal 1998 and the products for which the Company
provides manufacturing services.
<TABLE>
<CAPTION>
CUSTOMER END PRODUCTS
------------------------------------------------- -------------------------------------
<S> <C>
Advanced Fibre Communications.................... Local line loop carriers
Braun/ThermoScan................................. Temperature monitoring systems
Compaq........................................... Modems
Diebold.......................................... Automatic teller machines
Ericsson......................................... Business telecommunications systems
Lifescan (a Johnson & Johnson company)........... Portable glucose monitoring system
Microsoft........................................ Computer peripheral devices
U.S. Robotics.................................... Pilot electronic organizers
</TABLE>
In addition, in fiscal 1997 and the first quarter of fiscal 1998, the
Company began manufacturing products for a number of new customers, including
Ascend Communications (telecommunications products), Auspex (drive carriers),
Cisco Systems (data communications products), Harris DTS (network switches),
Philips Electronics (video cameras for personal computers), Philips Consumer
Products (telephones), Bay Networks (data communications products) and Nokia
(consumer electronics products). None of these customers are expected to
represent more than 10% of the Company's net sales in fiscal 1998.
In connection with the Karlskrona Acquisition, the Company and Ericsson
entered into a multi-year purchase agreement. Sales to Ericsson accounted for
approximately 30% of the Company's net sales in the first two quarters of fiscal
1998, and the Company believes that sales to Ericsson will account for a
significant portion of its net sales in fiscal 1998. See "-- Karlskrona
Acquisition" and "Risk Factors -- Risks of Karlskrona Acquisition."
40
<PAGE> 42
SALES AND MARKETING
The Company achieves worldwide sales coverage through a direct sales force,
which focuses on generating new accounts, and through program managers, who are
responsible for managing relationships with existing customers and making
follow-on sales. In North America, the Company maintains sales offices in
California and Massachusetts, as well as a recently established sales office in
Florida. The Company's Asian sales offices are located in Singapore and Hong
Kong. In Europe, the Company maintains sales offices in England, Germany and the
Netherlands. The Company is expanding its European sales force, and intends to
establish additional European sales offices in France and Sweden. In addition to
its sales force, the Company's executive staff plays an integral role in the
Company's marketing efforts.
SERVICES
The Company provides a broad range of advanced engineering, manufacturing
and distribution services to OEM customers. These services are provided on a
turnkey basis and, to a lesser extent, on a consignment basis, and include
product design, PCB fabrication and assembly, materials procurement, inventory
management, final system assembly and test, packaging and distribution. The
components, subassemblies and complete products manufactured by the Company for
its OEM customers incorporate advanced interconnect, miniaturization and
packaging technologies, such as SMT, MCM, COB and BGA technologies. An
increasing portion of the Company's net sales (a majority of its net sales in
fiscal 1997 and the first quarter of fiscal 1998) were derived from the
manufacture and assembly of complete products that are substantially ready for
distribution by the OEM to its customers. The Company also designs and
manufactures miniature gold-finished PCBs that OEMs then incorporate into their
products.
Engineering Services
The engineering services group coordinates and integrates the Company's
worldwide design, prototype and other engineering capabilities. Its focused,
integrated approach provides the Company's customers with advanced service and
support and leverages the Company's technological capabilities. As a result, the
engineering services group enables the Company to strengthen its relationship
with manufacturing customers as well as to attract new customers who require
advanced design services.
The engineering services group actively assists customers with initial
product design in order to reduce the time from design to prototype, improve
product manufacturability and reduce product costs. The Company provides a full
range of electrical, thermal and mechanical design services, including CAE and
CAD-based design services, manufacturing engineering services, circuit board
layout and test development. The engineering services group also coordinates
industrial design and tooling for product manufacturing. After product design,
the Company provides prototype assemblies for fast turnaround. During the
prototype process, Company engineers work with customer engineers to enhance
production efficiency and improve product design. The engineering services group
then assists with the transition to volume production. By participating in
product design and prototype development, the Company can reduce manufacturing
costs and accelerate the time to volume production.
The Company's recent acquisitions have provided it with substantial
advanced engineering capabilities. The Company's 1996 acquisition of Fine Line,
a San Jose-based provider of quick-turn circuit board layout and prototype
services, provides the Company with substantial expertise in a broad range of
advanced circuit board designs, and the Company's 1995 acquisition of nCHIP
provides advanced MCM design capabilities. The Company has integrated the nCHIP
capabilities, and is integrating the Fine Line capabilities, with the Company's
existing design and prototype capabilities in its engineering services group.
The Company plans to expand its design and prototype capabilities in Westford,
Massachusetts and San Jose, California, and also intends to establish design and
prototype capabilities in the Karlskrona Facilities.
Materials Procurement and Management
Materials procurement and management consists of the planning, purchasing,
expediting and warehousing of the components and materials used in the
manufacturing process. The Company's inventory management expertise and volume
procurement capabilities contribute to cost reductions and reduce total
41
<PAGE> 43
cycle time. The Company generally orders components after it has a firm purchase
order or letter of authorization from a customer. However, in the case of long
lead-time items, the Company will occasionally order components in advance of
orders, based on customer forecasts, to ensure adequate and timely supply.
Although the Company works with customers and third-party suppliers to reduce
the impact of component shortages, such shortages may occur from time to time
and may have a material adverse effect on the Company. See "Risk
Factors -- Limited Availability of Components." The campuses in China and Mexico
are designed to provide many of the custom components used by the Company
on-site, in order to reduce material and transportation costs, simplify
logistics and facilitate inventory management.
Assembly and Manufacturing
The Company's assembly and manufacturing operations include PCB assembly
and, increasingly, the manufacture of subsystems and complete products. Its PCB
assembly activities primarily consist of the placement and attachment of
electronic and mechanical components on printed circuit boards using both SMT
and traditional pin-through-hole ("PTH") technology. The Company also assembles
subsystems and systems incorporating PCBs and complex electromechanical
components, and, increasingly, manufactures and packages final products for
shipment directly to the customer or its distribution channels. The Company
employs just-in-time, ship-to-stock and ship-to-line programs, continuous flow
manufacturing, demand flow processes and statistical process control. The
Company has expanded the number of production lines for finished product
assembly, burn-in and test to meet growing demand and increased customer
requirements. In addition, the Company has invested in FICO, a producer of
injection molded plastic for Asia electronics companies with facilities in
Shenzhen, China.
As OEMs seek to provide greater functionality in smaller products, they
increasingly require advanced manufacturing technologies and processes. Most of
the Company's PCB assembly involves the use of SMT, which is the leading
electronics assembly technique for more sophisticated products. SMT is a
computer-automated process which permits attachment of components directly on
both sides of a PCB. As a result, it allows higher integration of electronic
components, offering smaller size, lower cost and higher reliability than
traditional manufacturing processes. By allowing increasingly complex circuits
to be packaged with the components placed in closer proximity to each other, SMT
greatly enhances circuit processing speed, and therefore board and system
performance. The Company also provides traditional PTH electronics assembly
using PCBs and leaded components for lower cost products.
With its acquisitions of Neutronics and DTM, the Company gained significant
plastic injection molding capabilities. In addition, the Company has a 40%
investment in FICO, which produces injection molded plastics for Asian
companies. Neutronics offers a wide range of custom-manufactured plastic
components for various sectors of the electronics industry, including consumer,
computer, telecommunications, medical and industrial. The Company's plastic
component manufacturing operations in Hungary utilize highly automated injection
molding processes.
The electronic products market is directly dependent on the plastic
components market for the packaging of an electronic product. The design of
plastic components for a new electronic product, and the associated sourcing of
plastic molds, normally involves a substantial lead time. As a result, plastic
suppliers with technical capabilities, such as Neutronics and DTM, are able to
provide additional services to electronic product manufacturers, such as the
development of plastic components and electronics assembly and development, to
improve the production process and reduce the finished product's time to market.
In addition, the Company has invested in emerging technologies that extend
its miniaturization capabilities. The Company's 1995 acquisition of nCHIP
provided it with advanced capabilities to design and assemble MCMs (collections
of integrated circuit chips interconnected within a single package), and the
Company now offers a range of MCM technologies from low-cost laminate MCMs to
high-performance, deposited thin-film MCMs. The Company assembles completed MCMs
in its San Jose, California facilities and also utilizes an outside assembly
company for assembly of completed MCMs.
The Company's 1996 acquisition of Astron provided it with significant
capabilities to fabricate miniature gold-finished PCBs for specialized
applications such as cellular phones, optoelectronics, LCDs, pagers and
42
<PAGE> 44
automotive electronics. These advanced laminate substrates can significantly
improve a product's performance, while reducing its size and cost. The Company's
miniature, gold-finished PCBs are fabricated in the Company's facility in China.
The Company is currently expanding this facility to provide the capacity to
fabricate other complex PCBs.
The Company is also increasingly focusing on advanced interconnect and
packaging technologies such as chip on board ("COB") and ball grid array ("BGA")
technology. COB technology represents a configuration in which a bare,
unpackaged semiconductor is attached directly onto a PCB, wire bonded and then
encapsulated with a polymeric material. COB technology facilitates miniaturized,
low-profile assemblies, and can result in lower component costs and reduced time
to market. The Company has significant experience in utilizing COB technology to
manufacture a wide range of products. BGA technology is an emerging technology
for packaging semiconductors that can provide higher interconnect density and
improved assembly yields and reliability by assembling surface-mount packages to
the circuit board through an array of solder balls, rather than pin leads. The
Company has recently begun utilizing BGA technology to manufacture products for
OEMs.
Test
After assembly, the Company offers computer-aided testing of PCBs,
subsystems and systems, which contributes significantly to the Company's ability
to deliver high-quality products on a consistent basis. Working with its
customers, the Company develops product-specific test strategies. The Company's
test capabilities include management defect analysis, in-circuit tests and
functional tests. In-circuit tests verify that all components have been properly
inserted and that the electrical circuits are complete. Functional tests
determine if the board or system assembly is performing to customer
specifications. The Company either designs and procures test fixtures and
develops its own test software or utilizes its customers' existing test fixtures
and test software. In addition, the Company also provides environmental stress
tests of the board or system assembly.
Distribution
The Company offers its customers flexible, just-in-time delivery programs
allowing product shipments to be closely coordinated with customers' inventory
requirements. Increasingly, the Company is warehousing products for customers
and shipping those products directly into their distribution channels. The
Company believes that this service can provide customers with a more
comprehensive solution and enable them to be more responsive to market demands.
COMPETITION
The electronics contract manufacturing industry is extremely competitive
and includes hundreds of companies, several of whom have achieved substantial
market share. The Company competes against numerous domestic and foreign
contract manufacturers, and current and prospective customers also evaluate the
Company's capabilities against the merits of internal production. In addition,
in recent years the electronics contract manufacturing industry has attracted a
significant number of new entrants, including large OEMs with excess
manufacturing capacity, and many existing participants, including the Company,
have significantly increased their manufacturing capacity by expanding their
facilities and adding new facilities. In the event of a decrease in overall
demand for contract manufacturing services, this increased capacity could result
in substantial pricing pressures which could adversely affect the Company's
operating results. Certain of the Company's competitors, including Solectron
Corporation and SCI Systems, have substantially greater manufacturing,
financial, research and development and marketing resources than the Company.
Others, such as Jabil Circuits and Celestica, are rapidly increasing their sales
and capacity. As competitors increase the scale of their operations, they may
increase their ability to realize economies of scale, to reduce their prices and
to more effectively meet the needs of large OEMs. The Company believes that the
principal competitive factors in the segments of the contract manufacturing
industry in which it operates are cost, technological capabilities,
responsiveness and flexibility, delivery cycles, location of facilities, product
quality and range of
43
<PAGE> 45
services available. Failure to satisfy any of the foregoing requirements could
materially adversely affect the Company's competitive position, its results of
operations, prospects or debt service ability.
EMPLOYEES
As of October 31, 1997, the Company employed approximately 10,296 persons,
including approximately 995 employees in Sweden who were added with the
Karlskrona Acquisition and 3,485 employees in Austria and Hungary who were added
with the Neutronics acquisition. Most of the Company's non-management employees
outside of the United States are represented by labor unions. The Company has
never experienced a work stoppage or strike. The Company believes that its
employee relations are good.
The Company's success depends to a large extent upon the continued services
of key managerial and technical employees. The loss of such personnel could have
a material adverse effect on the Company, its results of operations, prospects
or debt service ability. To date, the Company has not experienced significant
difficulties in attracting or retaining such personnel. Although the Company is
not aware that any of its key personnel currently intend to terminate their
employment, their future services cannot be assured. See "Risk
Factors -- Dependence on Key Personnel and Skilled Employees."
RECENT ACQUISITIONS
On October 30, 1997 the Company acquired 92% of the outstanding ordinary
shares of Neutronics, an Austrian contract manufacturer with operations in
Austria and Hungary, for 2,806,000 Ordinary Shares of the Company. Neutronics'
net sales in the 12 months ended June 30, 1997 were approximately $142.6
million. Neutronics' customers include Philips Electronics, Nokia and other OEMs
in the consumer electronics, business electronics, computer telecommunications,
primary care, medical appliances and automotive electronics industries.
Approximately 80% of Neutronic's net sales for the year ended December 31, 1996
and 60% of its net sales for the six months ended June 30, 1997 were derived
from sales to Philips Electronics.
Neutronics conducts its operations through four manufacturing facilities,
one in Austria and three in Hungary. These facilities, which total 718,000
square feet and have a total of approximately 3,500 employees are engaged
primarily in PCB assembly, as well as injection molded plastics. Neutronics also
provides engineering services at its Althofen, Austria facility. The Company
believes that Neutronics' manufacturing sites in Hungary (at Tab, Sarvar and
Zalaegerszag) benefit from a relatively low cost of labor compared to Western
Europe and the United States. There can be no assurance that real wages in
Hungary will not rise to a level comparable to Western Europe or the United
States.
Neutronics commenced operations in July 1994 as a joint venture between a
subsidiary of Philips Electronics and Sandaplast B.V. ("Sandaplast"), a Dutch
company corporation based in Malaysia. Neutronics initially acquired Philips'
existing facility in Althofen, Austria, and subsequently established the three
Hungarian facilities, modernized the Austrian facility and added plastic
injection molding capabilities. Accordingly, Neutronics has a limited operating
history. At the time of the acquisition, Neutronics was owned by Philips,
Malaysian businessman Shing Leong Hui and Neutronics' management. Neutronics'
management retained ownership of eight percent of the shares of Neutronics and
Shing Leong Hui has joined the Company's Board of Directors.
On December 1, 1997, the Company acquired DTM Products, Inc., a
Colorado-based producer of injection molded plastics for North American OEMs, in
exchange for 252,469 Ordinary Shares, and Energipilot AB, a Swedish company
principally engaged in providing cables and cable assemblies for Northern
European OEMs, in exchange for 229,990 Ordinary Shares.
The ability of the Company to obtain the benefits of the acquisitions of
Neutronics, DTM, and Energipilot is subject to a number of risks and
uncertainties, including the Company's ability to successfully integrate the
acquired operations and its ability to maintain, and increase, sales to
customers of the acquired companies. See "Risk Factors -- Acquisitions" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
44
<PAGE> 46
On March 27, 1997, the Company acquired from Ericsson the Karlskrona
Facilities located in Karlskrona, Sweden and related inventory, equipment and
other assets for approximately $82.4 million in cash. The Karlskrona Facilities
include a 220,000 square foot facility and a 110,000 square foot facility, each
of which is ISO 9002 certified. These facilities currently assemble PCBs,
network switches, cordless base stations and other components for business
communications systems sold by Ericsson. Approximately 870 Ericsson employees
based at the Karlskrona Facilities became employees of the Company at the
facilities. In addition, Ronny Nilsson, previously the Vice President and
General Manager, Supply and Distribution of Ericsson, was appointed President of
Flextronics International Sweden AB and Senior Vice President, Europe of the
Company.
The Company, certain of its subsidiaries and Ericsson also entered into the
related Karlskrona Purchase Agreement, under which the Company will manufacture
and Ericsson will purchase, for a three-year period, certain products used in
Ericsson's business communications systems. The Company believes that, as a
result, sales to Ericsson will account for a large portion of its net sales in
fiscal 1998. The Karlskrona Facilities' cost of sales and services (including
certain overhead allocations) for the year ended December 31, 1996 was
approximately 2.1 billion Swedish kronor (approximately $310.0 million based on
exchange rates at December 31, 1996). However, there can be no assurance as to
the volume of Ericsson's purchases, or the mix of products that it will
purchase, from the Karlskrona Facilities in any future period.
By acquiring the Karlskrona Facilities, the Company substantially increased
its worldwide capacity, obtained a strong base in Northern Europe and enhanced
its position as a contract manufacturer for the telecommunications industry,
which is increasingly outsourcing manufacturing. The Company also intends to use
the manufacturing resources provided by the Karlskrona Facilities to offer
services to other European OEMs, which it believes are also beginning to
outsource the manufacture of significant product lines.
Assuming Ericsson's sales of those products that the Company will
manufacture remain at current levels, the Company anticipates realizing
approximately $300.0 million of sales (based on current exchange rates) to
Ericsson in fiscal 1998; however, there can be no assurance that the Company's
sales to Ericsson will not be materially less than those anticipated. Although
the Company expects that its gross margin percentage on sales to Ericsson will
be less than that realized by the Company in fiscal 1996 and 1997, it also
expects that the impact of lower gross margins may be partially offset by the
effect of anticipated lower overhead and sales expenses, as a percentage of net
sales, associated with supplying products to Ericsson relative to supplying
products to other OEMs. To the extent that the Company is successful in
increasing the capacity of the Karlskrona Facilities and in using these
facilities to provide services to other OEMs, the Company anticipates increased
operating efficiencies. There can be no assurance that the Company will realize
lower overhead or sales expenses or increased operating efficiencies as
anticipated.
The foregoing, and discussions elsewhere in this Prospectus, contain a
number of forward-looking statements relative to the benefits and effects of the
Karlskrona Acquisition and the Neutronics Acquisition, and the Company's
relationship with Ericsson including the Company's anticipated sales to
Ericsson, the Company's net sales, gross margins and results of operations, and
no assurances can be given as to the Company's ability to achieve such benefits
and results. The Karlskrona Acquisition, the Neutronics Acquisition and the
Company's business are subject to a number of risks that could adversely affect
the Company's ability to achieve these operating results and the anticipated
benefits of the Karlskrona Acquisition and the Neutronics Acquisition, including
the Company's ability to reduce costs at the Karlskrona Facilities, the
Company's lack of experience operating in Sweden, Austria and Hungary, the
Company's ability to transition the Karlskrona Facilities from captive
manufacturing for Ericsson to manufacturing for third parties and to expand
capacity at these facilities and to integrate these facilities into its global
operations. Further, changes in exchange rates between Swedish kronor and the
Austrian Schilling on the one hand, and U.S. dollars on the other, will affect
the Company's operating results. See "Risk Factors -- Risks of Karlskrona
Acquisition."
The Karlskrona Purchase Agreement contains cost reduction targets and price
limitations and imposes on the Company certain manufacturing quality
requirements, and there can be no assurance that the Company can achieve
acceptable levels of profitability under the Karlskrona Purchase Agreement or
reduce costs and
45
<PAGE> 47
prices to Ericsson over time as contemplated by the Karlskrona Purchase
Agreement. In addition, the Karlskrona Purchase Agreement requires that the
Company maintain a ratio of equity to total liabilities, debt and equity of at
least 25%, and a current ratio of at least 120%. Further, the Karlskrona
Purchase Agreement prohibits the Company from selling or relocating the
equipment acquired in the transaction without Ericsson's consent. A material
breach by the Company of any of the terms of the Karlskrona Purchase Agreement
could allow Ericsson to repurchase the assets conveyed to the Company at the
Company's book value or to obtain other relief, including the cancellation of
outstanding purchase orders or termination of the Karlskrona Purchase Agreement.
Ericsson also has certain rights to be consulted on the management of the
Karlskrona Facilities and to approve the use of the Karlskrona Facilities for
Ericsson's competitors or for other customers where such use might adversely
affect Ericsson's access to production capacity at the facilities. In addition,
without Ericsson's consent, the Company may not enter into any transactions that
could adversely affect its ability to continue to supply products and services
to Ericsson under the Karlskrona Purchase Agreement or its ability to reduce
costs and prices to Ericsson. As a result of these rights, Ericsson may, under
certain circumstances, retain a significant degree of control over the
Karlskrona Facilities and their management. However, the Company understands
that it is Ericsson's intention that the Company utilize the Karlskrona
Facilities to provide services not just to Ericsson, but also to other OEMs, and
Ericsson will receive price reductions if the Company is able to reduce costs at
the Karlskrona Facilities through any resulting volume efficiencies.
FACILITIES
The Company has manufacturing facilities located in Austria, China,
Hungary, Malaysia, Mexico, Singapore, Sweden, the United Kingdom and the United
States. In addition, the Company provides engineering services at its facilities
in Austria, Singapore, California and Massachusetts. All of the Company's
manufacturing facilities are registered to the quality requirements of the
International Organization for Standardization (ISO 9002) or are in the process
of final certification.
Certain information about the Company's manufacturing and engineering
facilities as of December 15, 1997 is set forth below:
<TABLE>
<CAPTION>
YEAR APPROXIMATE OWNED/
LOCATION COMMENCED(1) SQUARE FEET LEASED(2) SERVICES
- -------------------------------- ------------ ----------- --------- -------------------------------
<S> <C> <C> <C> <C>
Manufacturing Facilities
Althofen, Austria(3).......... 1997 153,000 Owned Full system manufacturing; PCB
assembly.
Xixiang, China................ 1995 90,000 Leased High volume PCB assembly.
Hong Kong, China(4)........... 1996 45,000 Leased Fabrication of high density
PCBs
Doumen, China(4).............. 1996 330,000(4) Owned(5) Fabrication of high density,
miniaturized PCBs. High volume
PCB assembly.
Sarvar, Hungary(3)............ 1997 298,000 Owned(6) Full system manufacturing; PCB
assembly; plastic injection
molding.
Tab, Hungary(3)............... 1997 170,000 Owned Full system manufacturing; PCB
assembly.
Zalaegerszeg, Hungary(3)...... 1997 97,000 Owned Full system manufacturing; PCB
assembly.
Johore, Malaysia.............. 1991 80,000 Owned Full system manufacturing; PCB
assembly.
Guadalajara, Mexico........... 1997 101,000 Owned High volume PCB assembly.
Singapore(7).................. 1982 47,000 Leased Complex, high value-added PCB
assembly.
Karlskrona, Sweden............ 1997 330,000 Owned(8) Assembly and test of complex
PCBs and systems.
Stockholm, Sweden(9).......... 1997 70,000 Leased Assembly of cables and cable
assemblies.
Tonypandy, Wales(10).......... 1995 50,000 Owned Full system manufacturing;
medium complexity PCB assembly.
</TABLE>
46
<PAGE> 48
<TABLE>
<CAPTION>
YEAR APPROXIMATE OWNED/
LOCATION COMMENCED(1) SQUARE FEET LEASED(2) SERVICES
- -------------------------------- ------------ ----------- --------- -------------------------------
<S> <C> <C> <C> <C>
San Jose, California.......... 1994 65,000 Leased Full system manufacturing; PCB
assembly.
San Jose, California.......... 1996 32,500 Leased Complex, high value-added PCB
assembly.
San Jose, California.......... 1997 73,000 Owned Complex, high value-added PCB
assembly.
Niwot, Colorado(11)........... 1997 40,000 Leased Plastic injection molding.
Engineering Facilities
Althofen, Austria............. 1997 --(12) Owned Design, prototype and
engineering services.
Singapore..................... 1982 --(13) -- Design and prototype services.
Karlskrona, Sweden............ 1997 --(14) -- Design and prototype services.
Westford, Massachusetts....... 1987 9,112 Leased Design and prototype services.
San Jose, California.......... 1996 71,000 Leased Engineering services and
corporate functions.
</TABLE>
- ---------------
(1) Refers to year acquired, leased or constructed by the Company or its
predecessor.
(2) The leases for the Company's leased facilities expire between December 1997
and July 2005. In addition, the Company has a 47,000 square foot
manufacturing facility in Richardson, Texas that has been closed. The
Company leases this facility under a lease that expires in April 2000, and
the Company is seeking to sublet this facility.
(3) Acquired by the Company in fiscal 1998 in connection with the Neutronics
acquisition.
(4) Acquired by the Company in fiscal 1996 in connection with the Astron
acquisition.
(5) Excludes approximately 370,000 square feet used for dormitories,
infrastructure and other functions. The Company has land use rights for
this facility through 2020.
(6) The Company currently owns the land and certain of the buildings located in
the Sarvar Industrial Park and leases other buildings at this location.
(7) The Company downsized manufacturing operations at this facility in fiscal
1997.
(8) Ericsson has retained certain rights with respect to the Company's use and
disposition of the Karlskrona Facilities. See "-- Recent Acquisitions."
(9) Acquired by the Company in fiscal 1998 in connection with the Energipilot
acquisition.
(10) Acquired by the Company in fiscal 1996 in connection with the A&A
acquisition.
(11) Acquired by the Company in fiscal 1998 in connection with the DTM
acquisition.
(12) Located within the 153,000 square foot manufacturing facility in Althofen.
(13) Located within the 47,000 square foot manufacturing facility in Singapore.
(14) Located within the 330,000 square foot manufacturing facilities in
Karlskrona.
The Company has recently consolidated and expanded its manufacturing
facilities, with the goal of concentrating its activities in a smaller number of
larger, strategically located sites. The Company has closed its Richardson,
Texas facility and downsized manufacturing operations at its Singapore facility,
while substantially increasing overall capacity by expanding operations in North
America, East Asia and Northern Europe. In North America, the Company has
recently leased a new 71,000 square foot facility, from which the Company offers
a wide range of engineering services, including product design and prototype
development, and in July 1997 the Company completed construction of a new 73,000
square foot facility, dedicated to high volume PCB assembly. These new
facilities are located adjacent to the Company's other San Jose operations. Also
in July 1997, the Company completed construction of a 101,000 square foot
manufacturing facility on a 32-acre campus site in Guadalajara. This new
facility currently has over 200 employees and has begun PCB assembly operations.
In Asia, the Company has expanded its Doumen facilities by developing an
additional 240,000 square feet of facilities for fabrication of miniaturized
gold-finished PCB fabrication and for PCB and full system
47
<PAGE> 49
assembly. The Company completed this expansion in June 1997. The Doumen campus,
located on a 15-acre site, now includes approximately 330,000 square feet of
manufacturing facilities as well as approximately 370,000 square feet of
facilities used for dormitories, infrastructure and other functions, with over
1,000 employees. The Company is currently installing equipment and
infrastructure at its new facilities in Doumen, Guadalajara, and San Jose.
The campus facilities in Doumen and Guadalajara are designed to be
integrated facilities that can produce many of the custom components used by the
Company, manufacture complete products for customers, warehouse the products and
distribute them directly to customer's distribution channels. The Company
believes that by offering all of those capabilities at the same site, it can
reduce material and transportation costs, simplify logistics and communications,
and improve inventory management, providing customers with a more complete,
cost-effective manufacturing solution.
FICO, in which the Company has a 40% investment, produces injection molded
plastics for Asian companies from its 120,000 square foot facilities in
Shenzhen, China. The Company anticipates that FICO will relocate certain of its
operations to the Doumen campus.
48
<PAGE> 50
MANAGEMENT
DIRECTORS AND OFFICERS
The names, ages and positions of the Company's Directors and officers as of
October 31, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------- --- ------------------------------------------------
<S> <C> <C>
Michael E. Marks 46 Chief Executive Officer and Director
Tsui Sung Lam 47 President, Asia Pacific Operations and Director
Robert R. B. 48 Senior Vice President of Finance and
Dykes Administration
Ronny Nilsson 49 Senior Vice President, Europe
Michael McNamara 40 Vice President, President North American
Operations
Stephen J. L. 36 Senior Vice President, Worldwide Sales and
Rees Marketing and Director
Michael J. Moritz 42 Director
Richard L. Sharp 50 Director
Patrick Foley 65 Director
Alain Ahkong 50 Director
Shing Leong Hui 39 Director
</TABLE>
Michael E. Marks -- 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 ("Metcal"). Mr. Marks received a
B.A. and M.A. from Oberlin College and an M.B.A. from the Harvard Business
School.
Tsui Sung Lam -- Mr. Tsui has been the Company's President, Asia-Pacific
since April 1997, and a Director since 1991. From January 1994 to April 1997, he
served as the Company's President and Chief Operating Officer. 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 for
Flextronics, Inc., the Company's predecessor, 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.
Robert R. B. Dykes -- Mr. Dykes served as a Director of the Company from
January 1994 until August 1997 and since February 1997 he has served as its
Senior Vice President of Finance and Administration. Mr. Dykes was Executive
Vice President, Worldwide Operations and Chief Financial Officer of Symantec
Corporation, an application and system software products company, from 1988 to
February 1997. Mr. Dykes received a Bachelor of Commerce and Administration
degree from Victoria University in Wellington, New Zealand. Mr. Dykes is on the
board of directors of Symantec Corporation.
Ronny Nilsson -- Mr. Nilsson has served as the Company's Senior Vice
President, Europe since April 1997. From May 1995 to April 1997, he was Vice
President and General Manager, Supply & Distribution and Vice President,
Procurement, of Ericsson Business Networks where he was responsible for
facilities in Sweden, Austria, China, the Netherlands, Mexico and Australia.
From January 1991 to May 1995, he was Director of Production at the EVOX+RIFA
Group, a manufacturer of components, and Vice President of RIFA AB where he was
responsible for factories in Sweden, Finland, Singapore and Indonesia. Mr.
Nilsson received a certificate in Mechanical Engineering from the Lars Kagg
School in Kalmar, Sweden and certificates from the Swedish Management Institute
and the Ericsson Management Program.
Michael McNamara -- Mr. McNamara has served as Vice President, President
North American Operations since April 1994. From May 1993 to March 1994, he was
President and Chief Executive Officer of Relevant Industries, Inc., which was
acquired by the Company in March 1994. From May 1992 to May 1993, he was Vice
President, Manufacturing Operations at Anthem Electronics, an electronics
distributor. From
49
<PAGE> 51
April 1987 to May 1992, he was a Principal of Pittiglo, Rabin, Todd & McGrath,
an operations consulting firm. Mr. McNamara received a B.S. from the University
of Cincinnati and an M.B.A. from Santa Clara University.
Stephen J. L. Rees -- Mr. Rees has served as a Director of the Company
since April 1996, as Senior Vice President, Worldwide Sales and Marketing since
May 1997, and as Chairman and Chief Executive Officer of Astron since the
acquisition of Astron by the Company in February 1996. Mr. Rees has been
Chairman and Chief Executive Officer of Astron since November 1991. 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.
Michael J. Moritz -- 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 director of Yahoo,
Inc., Neomagic and several privately-held companies.
Richard L. Sharp -- Mr. Sharp has served as a Director of the Company since
July 1993. He is Chairman of the Board and Chief Executive Officer of Circuit
City Stores, Inc., a consumer electronics and appliance retailer. He joined
Circuit City as an Executive Vice President in 1982. He was President from June
1984 to March 1997 and became Chief Executive Officer in 1986 and Chairman of
the Board in 1994. Mr. Sharp also serves as a director of Fort James
Corporation.
Patrick Foley -- Mr. Foley has been a Director of the Company since October
1997. Mr. Foley is Chairman, President and Chief Executive Officer of DHL
Corporation, Inc. and its major subsidiary, DHL Airways, Inc., a global
document, package and airfreight delivery company. He joined DHL in September
1988 with more than 30 years experience in hotel and airline industries. Mr.
Foley also serves as a director of Continental Airlines, Inc., Del Monte
Corporation, DHL International, Foundation Health Systems, Inc. and Glenborough
Realty Trust, Inc.
Alain Ahkong -- Mr. Ahkong has served as a Director of the Company since
October 1997. Mr. Ahkong is a founder of Pioneer Management Services Pte. Ltd.
("Pioneer"), a Singapore-based consultancy firm, and has been the Managing
Director of Pioneer since 1990. Pioneer provides advice to the Company, and
other multinational corporations, on matters related to international taxation.
Shing Leong Hui -- Mr. Hui has served as a Director of the Company since
October 1997. Since 1996 he has been Managing Director of CS Hui Holdings in
Malaysia. Between 1984 and 1994 he was Managing Director of Samda Plastics
Industries Ltd., a plastic injection molding company in Malaysia. Since 1994 Mr.
S.L. Hui has also been a committee member of the Penang, Malaysia Industrial
Council, Vice-Chairman of the SMI Center in Malaysia, and Chairman of the
Sub-Committee Plastics Technology Training Center in Malaysia. Since 1990 he has
been President of the North Malaysian Small and Medium Enterprises Association.
50
<PAGE> 52
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 1997, 1996 and
1995 by the Chief Executive Officer and each of the four most highly compensated
executive officers as of March 31, 1997 whose total salary and bonus for fiscal
1997 exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- SECURITIES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ------------------------ ------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Marks........ 1997 $300,000 $ 80,400 $234,052(1) 250,000 $ 8,351(2)
Chairman of the Board 1996 $275,000 $132,500 -- 150,000 $ 10,209(3)
and Chief Executive 1995 $250,000 $ 45,750 -- 25,000 $ 9,170(4)
Officer
Tsui Sung Lam........... 1997 $256,791 $ 87,180 -- 20,000 $ 28,757(5)
President, 1996 $249,176 $143,313 -- 40,000 $ 39,988(6)
Asia-Pacific
Operations 1995 $216,028 $ 67,533 -- -- $ 18,288(7)
Michael McNamara........ 1997 $199,999 $ 30,642 $ 5,337(8) 21,000 $ 3,958(9)
Vice President, 1996 $173,250 $ 53,626 -- 15,000 --
President
of U.S. Operations 1995 $165,000 $ 15,468 -- -- --
Dennis Stradford(10).... 1997 $191,100 $ 33,634 -- -- $ 8,290(11)
Senior Vice President, 1996 $191,100 $ 65,066 -- 13,000 $ 9,419(12)
Sales and Marketing 1995 $182,000 $ 45,018 -- -- $ 8,800(13)
Goh Chan Peng(14)....... 1997 $174,283 $ 44,870 -- 16,000 $ 24,449(15)
Senior Vice President of 1996 $163,718 $ 65,976 -- 15,000 $ 24,217(16)
Finance and 1995 $134,193 $ 49,544 -- -- $ 14,122(17)
Operations,
Asia-Pacific
</TABLE>
- ---------------
(1) Includes an auto allowance of $7,712, forgiveness of a promissory note due
to a subsidiary of the Company of $200,000 and forgiveness of interest
payment of $26,340 on the promissory note payable to a subsidiary of the
Company.
(2) Includes Company contributions to the Company's 401(k) plan of $4,750 and
life and disability insurance premium payments of $3,601.
(3) Includes Company contributions to the Company's 401(k) plan of $4,370 and
life and disability insurance premium payments of $5,839.
(4) Includes Company contributions to the Company's 401(k) plan of $4,520 and
life insurance premium payments of $4,650.
(5) Includes life insurance payments of $736 and Company contributions to the
Central Provident Fund of $28,021. The Central Provident Fund is a
Singapore statutory savings plan to which contributions may be made to
provide for employees' retirement.
(6) Includes life insurance payments of $736 and Company contributions to the
Central Provident Fund of $39,252.
(7) Includes life insurance premium payments of $671 and Company contributions
to the Central Provident Fund of $17,617.
(8) Represents forgiveness of interest payment due on a promissory note payable
to a subsidiary of the Company.
(9) Represents Company contributions to the Company's 401(k) plan.
(10) Mr. Stradford was the Company's Vice President, Sales and Marketing through
April 1997. Mr. Stradford is now responsible for sales in Europe and is no
longer deemed an executive officer of the Company.
(11) Includes Company contributions to the Company's 401(k) plan of $4,750 and
life insurance premium payments of $3,540.
51
<PAGE> 53
(12) Includes Company contributions to the Company's 401(k) plan of $3,832 and
life insurance premium payments of $5,587.
(13) Includes Company contributions to the Company's 401(k) plan of $5,460 and
life insurance premium payments of $3,340.
(14) Mr. Goh was the Company's Chief Financial Officer for fiscal 1997. Mr. Goh
is no longer deemed an executive officer of the Company.
(15) Includes life insurance payments of $736 and Company contributions to the
Central Provident Fund of $23,713.
(16) Includes life insurance premium payments of $736 and Company contributions
to the Central Provident Fund of $23,481.
(17) Includes life insurance premium payments of $671 and Company contributions
to the Central Provident Fund of $13,451.
OPTION GRANT TABLE
The following table sets forth information regarding option grants during
fiscal 1997 to each of the Named Executive Officers. All options were granted
pursuant to the Company's 1993 Share Option Plan. In accordance with the rules
of the Securities and Exchange Commission, the table sets forth the hypothetical
gains or "option spreads" that would exist for the options at the end of their
respective five-year terms. These gains are based on assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted to the end of the option term.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
PERCENTAGE AT ASSUMED ANNUAL RATES
NUMBER OF OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES PRICE PER EXPIRATION -----------------------
NAME GRANTED(1) IN 1997 SHARE(2) DATE 5% 10%
- ------------------------------- ----------- ----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Marks............... 250,000 34.7% $ 23.125 11/08/01 $1,597,244 $3,529,511
Tsui Sung Lam.................. 20,000 2.8% $ 23.125 11/08/01 127,780 282,361
Michael McNamara............... 1,000 0.1% $ 19.75 08/27/01 5,457 12,058
20,000 2.1% $ 23.125 11/08/01 127,780 282,361
Dennis P. Stradford............ -- -- -- -- -- --
Goh Chan Peng.................. 1,000 0.1% $ 19.75 08/27/01 5,457 12,058
15,000 2.1% $ 23.125 11/08/01 95,835 211,771
</TABLE>
- ---------------
(1) The options shown in the table were granted at fair market value, are
incentive stock options and will expire five years from the date of grant,
subject to earlier termination upon termination of the optionee's
employment. The options become exercisable over a four-year period, with 25%
of the shares vesting on the first anniversary of the date of grant and
1/36th of the shares vesting for each full calendar month that an optionee
renders services to the Company thereafter. All of the options shown in the
table 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. In the case of Messrs.
Tsui and Goh, all of the options shown in the table will become immediately
exercisable in the event of termination of employment for any reason.
(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.
(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.
52
<PAGE> 54
YEAR-END OPTION TABLE
The following table sets forth certain information concerning the exercise
of options by each of the Named Executive Officers during fiscal 1997, including
the aggregate amount of gains on the date of exercise. In addition, the table
includes the number of shares covered by both exercisable and unexercisable
stock options as of March 31, 1997. Also reported are values of "in-the-money"
options that represent the positive spread between the respective exercise
prices of outstanding stock options and $19.875 per share, which was the closing
price of the Company's Ordinary Shares as reported on the Nasdaq National Market
on March 31, 1997, the last day of trading for fiscal 1997.
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END(2) FISCAL YEAR-END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(1) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Marks............ 10,000 286,700 132,002 349,998 1,196,977 692,213
Tsui Sung Lam............... 10,000 310,800 63,355 43,645 830,253 150,482
Michael McNamara............ -- -- 30,418 35,582 403,468 114,257
Dennis P. Stradford......... 16,000 416,648 6,105 6,895 44,970 52,915
Goh Chan Peng............... -- -- 35,230 27,770 502,256 70,529
</TABLE>
- ---------------
(1) "Value Realized" represents the fair market value of the Company's Ordinary
Shares underlying the option on the date of exercise less the aggregate
exercise price of the option.
(2) These values, unlike the amounts set forth in the column entitled "Value
Realized," have not been, and may never be, realized and are based on the
positive spread between the respective exercise prices of outstanding
options and the closing price of the Company's Ordinary Shares on March 31,
1997, the last day of trading for fiscal 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal 1997 were Mr. Dykes
and Mr. Sharp. Mr. Dykes resigned his position on the Compensation Committee
upon becoming an officer of the Company in February 1997. The current members of
the Compensation Committee are Mr. Sharp and Mr. Moritz. No officers of the
Company serve on the Compensation Committee.
EMPLOYMENT AND CONSULTING AGREEMENTS
In July 1993, the Company entered into employment agreements with Messrs.
Tsui and Goh. Under these agreements, Messrs. Tsui and Goh were entitled to
receive an annual salary (in Singapore dollars) of S$344,539 and S$207,103,
respectively. In April 1997, the Compensation Committee increased the base
salaries (in Singapore dollars) of Messrs. Tsui and Goh to S$429,000 and
S$304,499, respectively. In addition, the Company entered into revised
employment agreements with Messrs. Tsui and Goh as President, Asia Pacific
Operations and Senior Vice President of Finance and Operations, Asia Pacific,
respectively, effective April 1, 1997. Pursuant to the new employment
agreements, the employment of Messrs. Tsui and Goh will continue until either
the Company or the employee gives the other 12 months' notice of termination (or
pays the other 12 months' base salary in lieu of notice). The Company is
required to pay one month's salary for each year of employment by Messrs. Tsui
and Goh upon termination of their respective employment by the Company. The
Company also agreed that upon termination of employment of Messrs. Tsui or Goh
by the Company for any reason, any options to purchase Ordinary Shares then held
by them would immediately vest and become exercisable for all of the shares
subject to such option.
In connection with the Company's acquisition of Astron, Astron Technologies
Limited, a subsidiary of the Company ("ATL"), entered into a Services Agreement
(the "Services Agreement") with Croton Technology Ltd., a company under the
management and control of Mr. Rees ("Croton"), and Astron entered into a
Supplemental Services Agreement (the "Supplemental Services Agreement") with Mr.
Rees. Under
53
<PAGE> 55
the terms of the Services Agreement, Mr. Rees acted as President of ATL, and
Croton was responsible for developing the business of ATL through June 1998. The
Services Agreement provided that Croton will receive (i) a payment of $15.0
million on June 30, 1998, $5.0 million of which was to be payable in cash and
$10.0 million of which was to be 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. Payment of the $15.0 million lump sum payment was conditioned upon,
among other things, Mr. Rees' continuing as Chairman of Astron through June
1998. The Services Agreement was to terminate 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 acted as Chairman of Astron and
was responsible for maintaining and developing the business of Astron, and, in
exchange, received an annual salary of $140,000. The Supplemental Services
Agreement was to terminate on June 30, 1998.
Effective March 27, 1997, the Company revised the Services Agreement and
the Supplemental Services Agreement, and appointed Mr. Rees as the Company's
Senior Vice President - Worldwide Sales and Marketing. In connection with this
revision, the amount of the payment due on June 30, 1998 was reduced from $15.0
million to $14.0 million and the remaining conditions to the Company's payment
of the fee were removed. Of the $14.0 million, $5.0 million remains payable in
cash, and $9.0 million remains payable in cash or, at the option of the Company,
in Ordinary Shares. This reduction was negotiated in view of (i) a negotiated
settlement in March 1997 of the amount of the earnout payable by the Company to
the former shareholders of Astron in which the Company agreed to certain
matters, previously in dispute affecting the amount of the earnout payment, and
(ii) the elimination of the conditions to payment and of Mr. Rees' ongoing
obligations under the Services Agreement and the Supplemental Services
Agreement.
In connection with the acquisition of two manufacturing facilities from
Ericsson Business Networks AB located in Karlskrona, Sweden, the Company and Mr.
Ronny Nilsson entered into an Employment and Noncompetition Agreement
("Employment Agreement") and a Services Agreement (the "Nilsson Services
Agreement"), both dated as of April 30, 1997. Pursuant to the Employment
Agreement, Mr. Nilsson (a) was appointed as the Company's Senior Vice President,
Europe for a four-year period, (b) receives an annual salary of $250,000, and
(c) is entitled to a bonus of up to 45% of his annual salary upon the successful
completion of certain performance criteria. Pursuant to the Nilsson Services
Agreement, Mr. Nilsson is to perform management consultation and guidance
services to the Company in consideration of (a) an aggregate of $775,000 to be
paid between March 31, 1997 and April 15, 1998, and (b) the issuance by the
Company to Mr. Nilsson of an interest-free loan in the amount of $415,000 to be
repaid by Mr. Nilsson in two installments of $210,000 and $205,000 on September
15, 1997 and April 15, 1998, respectively.
On November 6, 1997, the Company's U.S. subsidiary loaned $1.5 million to
Mr. Marks, the Chairman of the Board and Chief Executive Officer of the Company.
Mr. Marks executed a promissory note in favor of Flextronics International USA,
Inc. which bears interest at a rate of 7.25% and matures on November 6, 1998.
This loan is secured by certain assets owned by Mr. Marks.
DESCRIPTION OF THE CREDIT FACILITY
The Credit Facility was established on March 27, 1997 and, subject to
compliance with certain financial covenants and the satisfaction of customary
borrowing conditions, provides for borrowings by the Company and Flextronics
International USA, Inc., a California corporation and wholly-owned Subsidiary of
the Company (the "United States Subsidiary") of an aggregate of $175.0 million.
BankBoston, N.A. (the "Bank"), an affiliate of BancBoston Securities, Inc., is
the lead agent and a lender under the Credit Facility.
The Credit Facility consists of two separate credit agreements, one
providing for up to $85.0 million principal amount of revolving credit loans and
a $70.0 million term loan to the Company and one providing for up to $20.0
million principal amount of revolving credit loans to the United States
Subsidiary. The ability of the Company and the United States Subsidiary to
borrow under the Credit Facility is subject to, among other things, compliance
with covenants, and financial ratios contained in the Credit Facility. The
revolving credit loans are subject to a borrowing base equal to 70% of
consolidated accounts receivable and 20% of consolidated inventory. As of
September 30, 1997, $77.0 million of revolving credit loans and the $70.0
million
54
<PAGE> 56
term loan were outstanding, and bore interest at a variable rate equal to
approximately 8.4% per annum. The term loan amortizes over a five-year period
and is subject to certain mandatory prepayment provisions. Loans under the
revolving credit facility will mature in March 2000. The Company used the net
proceeds from the recently completed Equity Offering and the sale of the Notes
to repay in full the outstanding term loan and revolving credit loans. The
Company anticipates increasing the aggregate principal amount of revolving
credit loans that may be made under the Credit Facility and the Company
anticipates that it will from time to time borrow such revolving credit loans to
fund its operations and growth. No assurances can be given, however, as to the
availability or amount of any such increase.
Loans to the Company are guaranteed by certain of its Subsidiaries and
loans to the Company's United States Subsidiary are guaranteed by the Company
and by certain of the Company's Subsidiaries. The Credit Facility is secured by
a lien on substantially all accounts receivable and inventory of the Company and
its Subsidiaries, as well as a pledge of the Company's shares in certain of its
Subsidiaries.
Loans under the Credit Facility bear interest at the lender's base rate
plus an applicable margin, depending on the Company's consolidated Leverage
Ratio (the ratio of Total Funded Indebtedness to EBITDA (each as defined
therein)). The Credit Facility further provides for the payment by the Company
of a commitment fee on the available and unused portion of the credit line and
certain other fees.
The Credit Facility contains covenants and provisions that, among other
things, prohibit the Company and its Subsidiaries from (i) incurring additional
indebtedness, subject to certain exceptions such as Subordinated Debt (as
defined therein) evidenced by the Subordinated Notes (as defined therein) in an
aggregate principal amount of not more than $150.0 million, certain purchase
money debt and leases not to exceed $25.0 million and certain subsidiary and
other debt not to exceed $15.0 million; (ii) incurring liens on their property
(subject to certain exceptions); (iii) making Capital Expenditures (as defined
therein) exceeding $65.0 million in fiscal 1998 and $25.0 million annually
thereafter; (iv) engaging in certain dispositions of assets; (v) making
acquisitions that do not meet certain criteria; and (vi) making certain other
investments. In addition, the Credit Facility prohibits the payment of dividends
by the Company or its Subsidiaries, except that the Company's Subsidiaries are
permitted to pay dividends to the Company or to any Subsidiary that is a
Guarantor (as defined therein).
The Credit Facility also requires that the Company satisfy certain
financial covenants and tests on a consolidated basis that, among other things,
provide that the Company's: (i) Leverage Ratio must not exceed 4.25 : 1.00
(reducing to 2.75 : 1.00 by October 1, 1998), (ii) Interest Coverage Ratio (the
ratio of EBITDA to Consolidated Total Interest Expense (as defined therein))
must not be less than 3.00 : 1.00 (increasing to 4.00 : 1.00 by January 1,
1999), (iii) Fixed Charge Coverage Ratio (the ratio of EBITDA to Fixed Charges
(as defined therein)) must not be less than 1.15 : 1.00 (increasing to 1.25 :
1.00 by April 1, 1999) and (iv) Consolidated Tangible Net Worth (as defined
therein) must not be less than the sum of (a) 95% of Consolidated Tangible Net
Worth at March 31, 1997 plus (b) on a cumulative basis, 75% of positive
Consolidated Net Income (as defined therein) for each fiscal year subsequent to
the fiscal year ended 1997, plus (c) 100% of the proceeds of any Equity Issuance
(as defined therein).
55
<PAGE> 57
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
The Old Notes were sold by the Company on October 15, 1997 to the Initial
Purchasers pursuant to a Purchase Agreement dated October 9, 1997 by and among
the Company and the Initial Purchasers. Upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, the Company will accept for exchange any and all Old Notes that are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on , 1997; provided, however, that if the Company,
in its sole discretion, has extended the period of time for which the Exchange
Offer is open, the term "Expiration Date" means the latest time and date to
which the Exchange Offer is extended.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of the Old Notes was outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about the date set forth on the cover
page to all holders of Old Notes at the addresses set forth in the security
register with respect to Old Notes maintained by the State Street Bank and Trust
Company of California, N.A. (the "Trustee"). The Company's obligation to accept
Old Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth under "-- Certain Conditions to the Exchange Offer"
below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by mailing written
notice of such extension to the holders thereof as described below. During any
extension, all Old Notes previously tendered will remain subject to the Exchange
Offer and may be accepted for exchange by the Company. Any Old Notes not
accepted for exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be $1,000 in principal amount
or any integral multiple thereof.
The Company will mail written notice of any extension, amendment,
non-acceptance or termination to the holders of the Old Notes as promptly as
practicable, such notice to be mailed to the holders of record of the Old Notes
no later than 9:00 a.m. New York City time, on the next business day after the
previously scheduled Expiration Date or other event giving rise to such notice
requirement.
REGISTRATION RIGHTS; ADDITIONAL INTEREST
Pursuant to the Registration Rights Agreement, the Company has agreed with
the Initial Purchasers, for the benefit of the holders of the Old Notes, that
the Company will, at its cost, (i) not later than 45 days after the closing of
the sale of the Old Notes (the "Closing Date"), file the Registration Statement
with the Commission and (ii) cause the Registration Statement to be declared
effective under the Securities Act not later than 135 days after the Closing
Date. The Registration Statement of which this Prospectus is a part constitutes
the Registration Statement.
If applicable interpretations of the staff of the Commission do not permit
the Company to effect the Exchange Offer, or if for any reason the Exchange
Offer is not completed within 165 days after the Closing Date, or if the Initial
Purchasers so request with respect to Old Notes not eligible to be exchanged for
New Notes in the Exchange Offer, or if any holder of Old Notes is not eligible
to participate in the Exchange Offer or participates in but does not receive
freely tradeable (except for prospectus delivery requirements) New Notes in the
Exchange Offer, the Company will, at its cost, (a) as promptly as practicable,
file a Shelf Registration Statement covering resales of the Notes, (b) use its
reasonable efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act and (c) keep the Shelf Registration Statement
effective until two years after its effective date (or shorter period that will
terminate when all Notes covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement). The Company will, in the
event a Shelf Registration Statement is filed, among other things, provide to
each
56
<PAGE> 58
holder for whom such Shelf Registration Statement was filed copies of the
prospectus which is part of the Shelf Registration Statement, notify each such
holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the
Notes. A holder selling such Notes pursuant to the Shelf Registration Statement
generally would be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Registration Rights
Agreement that are applicable to such holder (including certain indemnification
obligations).
If (i) the Exchange Offer Registration Statement is not filed with the
Commission on or prior to the 45th day following the date of original issue of
the Notes, (ii) the Exchange Offer Registration Statement is not declared
effective on or prior to the 135th day following the date of original issue of
the Notes, (iii) neither the Exchange Offer is consummated nor the Shelf
Registration Statement is declared effective on or prior to the 165th day
following the date of the original issue of the Notes, or (iv) a Shelf
Registration Statement is required to be filed because of the request of the
Initial Purchasers or other specified Holder, 45 days following the request by
the Initial Purchasers that the Company file the Shelf Registration Statement
(or 90 days if the Shelf Registration Statement is reviewed by the Commission),
then the interest rate borne by the Notes (except in the case of clause (iv), in
which case only the Notes which have not been exchanged in the Exchange Offer)
shall be increased by one-quarter of one percent per annum, which rate (as
increased as aforesaid) will increase by one quarter of one percent each 90-day
period that such additional interest continues to accrue under any such
circumstance, with an aggregate maximum increase in the interest rate equal to
one percent per annum. Upon (w) the filing of the Exchange Offer Registration
Statement in the case of clause (i) above, (x) the effectiveness of the Exchange
Offer Registration Statement in the case of clause (ii) above, (y) the date of
the consummation of the Exchange Offer or the effectiveness of the Shelf
Registration Statement in the case of clause (iii) above, or (z) the
effectiveness of the Shelf Registration Statement, in the case of clause (iv)
above, the interest rate on the Notes from the date of such filing,
effectiveness or the date of such consummation or effectiveness, as the case may
be, will be reduced to the original interest rate set forth on the cover of this
Prospectus; provided, however, that, if after any such reduction in interest
rate, a different event specified in clause (i), (ii), (iii) or (iv) above
occurs, the interest rate shall again be increased pursuant to the foregoing
provisions.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus constitutes a part.
PROCEDURE FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, together with all other
documents required by such Letter of Transmittal, to State Street Bank and Trust
Company of California, N.A. (the "Exchange Agent") at the address set forth
below under "-- Exchange Agent" on or prior to the Expiration Date. In addition,
(i) certificates for the Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal or (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of the Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF THE DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED IN ALL CASES.
SUFFICIENT TIME SHOULD BE
57
<PAGE> 59
ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined herein). If signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, the guarantees must be by a firm that is an eligible guarantor
institution (bank, stockbroker, national securities exchange, registered
securities association, savings and loan association or credit union with
membership in a signature medallion program) pursuant to Exchange Act Rule
17Ad-15 (collectively, "Eligible Institutions"). If Old Notes are registered in
the name of a person other than the person signing the Letter of Transmittal,
the Old Notes surrendered for exchange must be endorsed by, or be accompanied by
a written instrument or instruments of transfer or exchange, in satisfactory
form as determined by the Company in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or not to accept any
particular Old Notes if acceptance might, in the judgment of the Company or its
counsel, be unlawful. The Company also reserves the absolute right in its sole
discretion to waive any defects or irregularities or conditions of the Exchange
Offer as to any particular Old Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Old Notes in the Exchange Offer). The interpretation of the terms and
conditions of the Exchange Offer as to any particular Old Notes either before or
after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of Old
Notes for exchange must be cured within a reasonable period of time that the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give any notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Old Notes, the Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the Old
Notes. If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted with the Letter of Transmittal.
By tendering Old Notes, each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If any holder of Old Notes is an "affiliate" of the
Company, as defined under Rule 405 of the Securities Act, or is engaged in or
intends to engage in or has any arrangement with any person to participate in
the distribution of the New Notes to be acquired pursuant to the Exchange Offer,
the holder (i) could not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
58
<PAGE> 60
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
The Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. For each Old Note accepted for exchange, the holder of the Old Note
will receive a New Note having a principal amount equal to that of the
surrendered Old Note. The New Notes will bear interest from the most recent date
to which interest has been paid on the Old Notes or, if no interest has been
paid on the Old Notes, from October 15, 1997. Accordingly, if the relevant
record date for interest payment occurs after the completion of the Exchange
Offer, registered holders of New Notes on the record date will receive interest
accruing from the most recent date to which interest has been paid or, if no
interest has been paid, from October 15, 1997. If, however, the relevant record
date for interest payment occurs prior to the completion of the Exchange Offer,
registered holders of Old Notes on the record date will receive interest
accruing from the most recent date to which interest has been paid or, if no
interest has been paid, from October 15, 1997. Old Notes accepted for exchange
will cease to accrue interest from and after the date of completion of the
Exchange Offer, except as set forth in the immediately preceding sentence.
Holders of Old Notes whose Old Notes are accepted for exchange will not receive
any payment in respect of interest on the Old Notes otherwise payable on any
interest payment date the record date for which occurs on or after completion of
the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) certificates for the Old Notes or a timely
Book-Entry Confirmation of the Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility, (ii) a properly completed and duly executed
Letter of Transmittal and (iii) all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer or if certificates representing Old Notes are submitted
for a greater principal amount than the holder desires to exchange, certificates
representing the unaccepted or non-exchanged Old Notes will be returned without
expense to the tendering holder thereof (or, in the case of Old Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
below, the non-exchanged Old Notes will be credited to an account maintained
with the Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer the Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Facility's procedures for transfer. ALTHOUGH DELIVERY OF OLD NOTES MAY BE
EFFECTED THROUGH BOOK-ENTRY TRANSFER AT THE BOOK-ENTRY TRANSFER FACILITY, THE
LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF, WITH ANY REQUIRED SIGNATURE
GUARANTEES AND ANY OTHER REQUIRED DOCUMENTS, MUST, IN ANY CASE, BE TRANSMITTED
TO AND RECEIVED BY THE EXCHANGE AGENT AT THE ADDRESS SET FORTH BELOW UNDER
"EXCHANGE AGENT" ON OR PRIOR TO THE EXPIRATION DATE OR THE GUARANTEED DELIVERY
PROCEDURES DESCRIBED BELOW MUST BE COMPLIED WITH.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of Old Notes desires to tender the Old Notes and the
Old Notes are not immediately available, or time will not permit the holder's
Old Notes or other required documents to reach the Exchange Agent before the
Expiration Date, or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if (i) the tender is made through an
Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent
receives from the Eligible Institution a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in
59
<PAGE> 61
the form provided by the Company (by telegram, telex, facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of Old
Notes and the amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that within five [New York Stock Exchange
("NYSE")] trading days after the date of execution of the Notice of Guaranteed
Delivery, the certificates for all physically tendered Old Notes, in proper form
for transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal, are received by the Exchange Agent within five [NYSE] trading
days after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal to be effective, a written or facsimile notice of
withdrawal must be received by the Exchange Agent at the address set forth below
under "-- Exchange Agent." Any notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amounts of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless the holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of the facility. All questions as to
the validity, form and eligibility (including time of receipt) of the notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Certificates for any Old Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Notes that have been tendered for exchange but which are
not exchanged for any reason will be returned to the holder thereof without cost
to the holder (or, in the case of Old Notes tendered by book-entry transfer into
the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, the Old Notes will be credited
to an account maintained with the Book-Entry Transfer Facility for the Old
Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "-- Procedure for
Tendering Old Notes" above at any time on or prior to the Expiration Date.
60
<PAGE> 62
EXCHANGE AGENT
State Street Bank and Trust Company of California, N.A. has been appointed
as the Exchange Agent for the Exchange Offer. All executed Letters of
Transmittal should be directed to the Exchange Agent at the address set forth
below. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent, addressed as
follows:
By Mail or by Hand:
State Street Bank and Trust Company of California, N.A., Exchange
Agent
c/o State Street Bank and Trust Company
2 International Place
Boston, MA 02110
Attn: Corporate Trust Department
By Facsimile:
(617) 664-5232
----------------------------------------
Confirm Facsimile by Telephone:
(617) 664-5314
----------------------------------------
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer tax in connection therewith, except that Holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering Holder will be responsible for the payment of any
applicable transfer tax thereon.
APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS
IN CONNECTION WITH THE EXCHANGE OFFER.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of the Old Notes. In general, the Old Notes may not be offered or
sold unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws. The Company does not
anticipate that it will register Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission issued to third parties, New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold or otherwise transferred by holders thereof (other
than any holder that is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the New
Notes are acquired in the ordinary course of the holders' business and
61
<PAGE> 63
the holders have no arrangement with any person to participate in the
distribution of the New Notes. Each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If any holder is an affiliate of the Company, is
engaged in or intends to engage in or has any arrangement or understanding with
respect to the distribution of the New Notes to be acquired pursuant to the
Exchange Offer, the holder (i) could not rely on the applicable interpretations
of the staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives New Notes for its own
account in exchange for Old Notes must acknowledge that the Old Notes were
acquired by the broker-dealer as a result of market-making activities or other
trading activities and that it will deliver a prospectus in connection with any
resale of the New Notes. See "Plan of Distribution." In addition, to comply with
the securities laws of certain jurisdictions, if applicable, it may be necessary
to qualify for sale or to register the New Notes prior to offering or selling
the New Notes. The Company does not intend to take any action to register or
qualify the New Notes for resale in any of these jurisdictions.
62
<PAGE> 64
DESCRIPTION OF THE NOTES
GENERAL
As used below in this "Description of Notes" section, references to the
"Notes" refer to the Old Notes and the New Notes, unless the context otherwise
requires.
The Old Notes were and the New Notes will be issued under an Indenture to
be dated as of October 15, 1997 (the "Indenture") between the Company and State
Street Bank and Trust Company of California, N.A., as trustee (the "Trustee").
The following summary of the material provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all provisions of the Indenture, a copy of which can be obtained
from the Company upon request. Upon the issuance of the Exchange Notes, if any,
or the effectiveness of the Shelf Registration Statement, the Indenture will be
subject to and governed by the provisions of the Trust Indenture Act of 1939
(the "Trust Indenture Act"). The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions." Wherever
particular sections or defined terms of the Indenture not otherwise defined
herein are referred to, such Sections or defined terms shall be incorporated
herein by reference, and those terms made a part of the Indenture by the Trust
Indenture Act also are incorporated herein by reference.
Unless otherwise specifically indicated, all references in this section to
the "Company" are to Flextronics International Ltd., a Singapore corporation,
and not to any of its Subsidiaries.
TERMS OF NOTES
The Notes, which mature on October 15, 2007, will be limited to
$150,000,000 in aggregate principal amount. The Notes will not be entitled to
any sinking fund. The Notes will be redeemable at the option of the Company as
described below under "-- Redemption."
The Notes will bear interest from the date of issuance at the rate per
annum set forth on the cover page hereof payable semiannually in arrears on
April 15 and October 15 of each year commencing on April 15, 1998 until the
principal thereof is paid or made available for payment to the Holders of record
at the close of business on the next preceding April 1 or October 1,
respectively. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months. The circumstances under which the interest rate may
increase from the rate set forth on the cover page hereof are described under
"Exchange Offer; Registration Rights."
Principal of, premium, if any, and interest on the Notes will be payable at
the office or agency of the Trustee maintained for such purpose within the City
and State of New York or, at the option of the Company, payment of interest may
be made by check mailed to the Holders of the Notes at their respective
addresses set forth in the register of Holders of Notes; provided that all
payments of principal of, premium, if any, and interest with respect to Notes
the Holders of which have given wire transfer instructions to the Company will
be required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose.
The Notes will be issued only in fully registered form, without coupons, in
denominations if $1,000 and any integral multiple of $1,000; provided, that
certificated Notes originally purchased by or transferred to Institutional
Accredited Investors who are not also "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) ("QIBs") will be subject to a
minimum denomination of $100,000. No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
All references herein to payments of principal of, premium, if any, and
interest on the Notes shall be deemed to include any applicable Additional
Amounts that may become payable in respect of the Notes. See "-- Payment of
Additional Amounts."
63
<PAGE> 65
SUBORDINATION
The Notes will be unsecured obligations of the Company and will be
subordinated in right of payment to all current and future Senior Debt of the
Company, including the Company's obligations under the Credit Facility. The
Notes will rank pari passu with any future senior subordinated indebtedness of
the Company and will rank senior to all other subordinated indebtedness of the
Company. As of September 30, 1997, on a pro forma basis, the Company had
approximately $150.0 million of Senior Debt outstanding and, through its
Subsidiaries, had additional liabilities (including trade payables and capital
lease obligations) aggregating approximately $148.5 million, which would rank
senior, or effectively senior, as the case may be, in right of payment to the
Notes.
The Company has entered into the Credit Facility, under which the Company
and its United States Subsidiary may borrow up to an aggregate of $105.0 million
of revolving credit loans, subject to compliance with certain covenants and
financial ratios. The Company has guaranteed the obligations of its United
States Subsidiary under the Credit Facility. Borrowings by the Company under the
Credit Facility, and guarantees by the Company of borrowings by its United
States Subsidiary, constitute Senior Debt. The Company anticipates increasing
the aggregate principal amount of revolving credit loans that may be made under
the Credit Facility (although no assurances can be given as to the availability
or amount of any such increase). See "Description of the Credit Facility."
The Company is a holding company with no business operations other than (i)
holding the capital stock of its Subsidiaries and (ii) advancing funds to, and
receiving funds from, its subsidiaries. In repaying its indebtedness, including
the Notes, the Company must rely on dividends and other payments made to it by
its Subsidiaries.
The Holders of the Notes will have no direct claims against the Company's
Subsidiaries. The ability of the Company's Subsidiaries to make payments to the
Company will be affected by the obligations of such Subsidiaries to their
creditors. Claims of holders of indebtedness of the Company, including the
Notes, against the cash flow and assets of the Company's Subsidiaries will be
effectively subordinated to claims of such creditors.
In addition, the rights of the Holders of the Notes to participate in the
assets of any Subsidiary of the Company upon such Subsidiary's liquidation or
recapitalization will be subject to the prior claims of such Subsidiary's
creditors. The ability of the Company's Subsidiaries to make payments to the
Company will also be subject to, among other things, applicable state and
foreign corporate laws and other laws and regulations. In order to pay the
principal amount at maturity of the Notes, the Company may be required to adopt
one or more alternatives, such as a refinancing of the Notes. See "Risk
Factors -- Holding Company Structure."
Upon any distribution to creditors of the Company in a total or partial
liquidation, winding up, reorganization or dissolution of the Company or in a
voluntary or involuntary bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property, an assignment for
the benefit of creditors or any marshalling of the Company's assets and
liabilities, the holders of Senior Debt will be entitled to receive payment in
full in cash of all Obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Debt) before the Holders of the Notes will be entitled to
receive any payment with respect to the Notes, and until all Obligations with
respect to Senior Debt are paid in full in cash, any distribution to which the
Holders of the Notes would be entitled shall be made to the holders of Senior
Debt (except that Holders of the Notes may receive Permitted Junior Securities
and payments made from the trust described under "-- Legal Defeasance and
Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under
"-- Legal Defeasance and Covenant Defeasance") if (i) a default in the payment
of the principal of, premium, if any, or interest on Designated Senior Debt
occurs and is continuing beyond any applicable period of grace or (ii) any other
default occurs and is continuing with respect to Designated Senior Debt that
permits holders of the Designated Senior Debt as to which such default relates
to accelerate its maturity and, in the case of clause (ii), the Trustee receives
a notice of such
64
<PAGE> 66
default (a "Payment Blockage Notice") from the Company and the holders of any
Designated Senior Debt. Payments on the Notes may and shall be resumed (x) in
the case of a payment default, upon the date on which such default is cured or
waived and (y) in case of a nonpayment default, the earlier of (a) the date on
which such nonpayment default is cured or waived, (b) 179 days after the date on
which the applicable Payment Blockage Notice is received, (c) the date such
Designated Senior Debt shall have been discharged or paid in full in cash or (d)
the date such Payment Blockage Period shall have been terminated by written
notice to the Company or the Trustee from the holders of Designated Senior Debt
initiating such Payment Blockage Period, after which, in the case of clauses
(a), (b), (c) and (d), the Company shall resume making any and all required
payments in respect of the Notes, including any payments not made to the Holders
of the Notes during the Payment Blockage Period due to the foregoing
prohibitions, unless the provisions described in clause (i) are then applicable.
No new period of payment blockage may be commenced unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been cured or waived for a period of not less than 90 days.
The Indenture further requires that the Trustee provide the holders of
Designated Senior Debt at least 10 days prior written notice of any acceleration
of the maturity of the Notes.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of the Notes may recover less ratably
than creditors of the Company who are holders of Senior Debt. The Indenture will
limit, subject to certain financial tests, the amount of additional Debt,
including Senior Debt, that the Company and its Subsidiaries can incur. See
"-- Certain Covenants -- Incurrence of Debt and Issuance of Preferred Stock."
REDEMPTION
Optional Redemption After October 15, 2002.
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after October 15, 2002 upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on October 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---------------------------------------------------------- ----------
<S> <C>
2002...................................................... 104.375%
2003...................................................... 102.917
2004...................................................... 101.459
2005 and thereafter....................................... 100.000%
</TABLE>
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
Optional Redemption After Ordinary Shares Offering.
Notwithstanding the foregoing, during the first 36 months after the date of
this Prospectus, the Company may on any one or more occasions redeem up to an
aggregate of $52.5 million in aggregate principal amount of the Notes at a
redemption price of 108.75% of the principal amount thereof, plus accrued and
unpaid interest thereon to the redemption date, with the net cash proceeds of a
public or private offering of Ordinary Shares of the Company (other than the
Equity Offering) (an "Equity Sale"); provided that at least $97.5 million in
aggregate principal amount of Notes remain outstanding immediately after the
occurrence of such redemption; and provided, further, that such redemption shall
occur within 90 days of the date of the closing of such Equity Sale.
65
<PAGE> 67
Optional Redemption in Circumstances Involving Taxation.
If, as the result of any change in or any amendment to the laws, including
any applicable double taxation treaty or convention, of Singapore (or any Other
Jurisdiction, as defined below under "Payment of Additional Amounts"), or of any
political subdivision or taxing authority thereof, affecting taxation, or any
change in the application or interpretation of such laws, double taxation treaty
or convention (a "Change in Tax Law"), which change or amendment becomes
effective on or after the original issuance date of the Notes (or, in certain
circumstances, such later date on which any assignee of the Company or a
successor corporation to the Company becomes such as permitted under the
Indenture), it is determined, by the Company or such assignee (which terms, for
purposes of the remainder of this paragraph, include any successor thereto) that
(i) the Company or its assignee would be required to make payments of Additional
Amounts on the next succeeding date for the payment thereof and (ii) the effect
of such Change in Tax Law cannot be avoided through any reasonable measures
available to the Company, the Company may, at its option, redeem the Notes in
whole at any time at a redemption price equal to 100% of the principal amount
thereof plus accrued and unpaid interest to the date fixed for redemption (the
"Tax Redemption Price").
Selection and Notice.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on the Notes or portions of them
called for redemption.
REPURCHASE AT THE OPTION OF HOLDERS UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Company will mail
a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Notes on the date
specified in such notice, which date shall be no earlier than 30 days and no
later than 60 days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture will provide
that, prior to complying with the provisions of this
66
<PAGE> 68
covenant, but in any event within 90 days following a Change of Control, the
Company will either repay in full in cash all outstanding Senior Debt or obtain
the requisite consents, if any, under all agreements governing outstanding
Senior Debt to permit the repurchase of Notes required by this covenant. The
Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The Credit Facility restricts the ability of the Company to purchase any
Notes and other senior subordinated or subordinated indebtedness of the Company,
and also provides that certain change of control events with respect to the
Company constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. In the event any such restrictions
would prohibit the Company from repurchasing Notes upon a Change of Control, the
Company could seek the consent of its lenders to the purchase of Notes or could
attempt to refinance the borrowings that contain such restrictions. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture which would, in turn, constitute as default under the Credit
Facility. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act), (ii) the adoption by the Company of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any "person" (as defined above) becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly
or indirectly, of more than 50% of the Voting Stock of the Company (measured by
voting power rather than number of shares), or (iv) the first day on which a
majority of the members of the Board of Directors of the Company are not
Continuing Directors.
The Change of Control provision of the Notes may in certain circumstances
make it more difficult or discourage a takeover of the Company and, as a result,
may make removal of incumbent management more difficult. The Change of Control
provision, however, is not the result of the Company's knowledge of any specific
effort to accumulate the Company's stock or to obtain control of the Company by
means of a merger, tender offer, solicitation or otherwise, or part of a plan by
management to adopt a series of anti-takeover provisions. Instead, the Change of
Control provision is a result of negotiations between the Company and the
Initial Purchasers. The Company is not presently in discussions or negotiations
with respect to any pending offers which, if accepted, would result in a
transaction involving a Change of Control, although it is possible that the
Company would decide to do so in the future.
The provisions of the Indenture would not necessarily afford Holders of the
Notes protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the Company that may
adversely affect Holders of the Notes.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Notes
67
<PAGE> 69
to require the Company to repurchase such Notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of the
Company and its Subsidiaries taken as a whole to another person or group may be
uncertain.
"Continuing Director" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election and who voted with respect to such nomination or
election; provided that a majority of the members of the Board voting with
respect thereto shall at the time have been Continuing Directors.
CERTAIN COVENANTS
Restricted Payments.
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any other payment or distribution on account of the Company's or any of
its Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's or any of its Subsidiaries' Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company),
except to the extent the entirety of such dividend or distribution is actually
paid to the Company or a Subsidiary of the Company (and in the case of a
dividend or distribution by any non-Wholly Owned Subsidiary of the Company, to
any other holder of Equity Interests of such non-Wholly Owned Subsidiary on a
pro rata basis); (ii) purchase, redeem or otherwise acquire or retire for value
(including without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any direct or
indirect parent of the Company, (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
Subordinated Debt, except a payment of interest or principal at Stated Maturity;
or (iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Debt pursuant to the covenant described below
under the caption "-- Incurrence of Debt and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries after the
date of the Indenture (excluding Restricted Payments permitted by clause (ii) of
the next succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income (or if Consolidated Net Income shall be a loss, minus
100% of such loss) of the Company for the period (taken as one accounting
period) from (and including) the fiscal quarter commencing January 1, 1998 to
the end of the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment (or,
if such Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale since the date of the indenture of Equity
Interests of the Company (other than the net cash proceeds to be received in the
Equity Offering and other than Disqualified Stock) or of Disqualified Stock or
debt securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or convertible
debt securities) sold to a Subsidiary of the Company and other than Disqualified
Stock or convertible debt securities that have been converted into Disqualified
Stock).
68
<PAGE> 70
The foregoing provisions do not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Subsidiary of the Company or any
Subordinated Debt, in each case in exchange for, or out of the net proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
provided, however, that the amount of any such net proceeds that are utilized
for any such redemption, repurchase, retirement or other acquisition shall be
excluded from clause (ii) of the preceding paragraph; and (iii) the redemption,
repurchase, refinancing or defeasance of Subordinated Debt in exchange for, or
with the net cash proceeds from, an incurrence of Permitted Refinancing Debt.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment having a fair market value in excess of $5.0 million
shall be determined by the Board of Directors whose resolution with respect
thereto shall be delivered to the Trustee. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "Restricted
Payments" were computed.
Incurrence of Debt and Issuance of Preferred Stock.
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Debt (including Acquired
Debt) and that the Company will not permit any of its Subsidiaries to issue any
shares of preferred stock; provided, however, that the Company and any
Subsidiary may incur Debt (including Acquired Debt) if the Fixed Charge Coverage
Ratio for the Company's and its Subsidiaries' most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Debt is incurred would
have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional Debt had
been incurred at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Debt (collectively, "Permitted
Debt"):
(i) the incurrence by the Company or any of its Subsidiaries of
revolving credit Debt and letters of credit (with letters of credit being
deemed to have a principal amount equal to the maximum potential liability
of the Company and its Subsidiaries thereunder) under Credit Agreements;
provided that the aggregate principal amount of all revolving credit Debt
outstanding under all Credit Agreements and incurred pursuant to this
clause (i), after giving effect to such incurrence, including all Permitted
Refinancing Debt incurred to refund, refinance or replace any other Debt
incurred pursuant to this clause (i), together with all amounts outstanding
under clause (ii) below, does not exceed the greater of $125.0 million and
the Borrowing Base;
(ii) the incurrence by the Company or any of its Subsidiaries of
Receivables Program Debt in an aggregate amount at any one time outstanding
not to exceed, together with the amounts outstanding under clause (i)
above, the greater of $125.0 million and the Borrowing Base;
(iii) the incurrence by the Company and its Subsidiaries of Existing
Debt;
(iv) the incurrence by the Company or any of its Subsidiaries of Debt
represented by the Notes and permissible Debt under the Credit Facility as
in effect on the date of the Indenture;
(v) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to refund, refinance or replace, Debt that was permitted by the
Indenture to be incurred;
69
<PAGE> 71
(vi) the incurrence by the Company or any of its Subsidiaries of
intercompany Debt between or among the Company and any of its Wholly Owned
Subsidiaries; provided, however, that (i) if the Company is the obligor on
such Debt, such Debt is expressly subordinated to the prior payment in full
in cash of all Obligations with respect to the Notes and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results in any
such Debt being held by a Person other than the Company or a Wholly Owned
Subsidiary and (B) any sale or other transfer of any such Debt to a Person
that is not either the Company or a Wholly Owned Subsidiary shall be
deemed, in each case, to constitute an incurrence of such Debt by the
Company or such Subsidiary, as the case may be;
(vii) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Debt that is permitted
by the terms of the Indenture to be outstanding or for the purpose of
fixing or hedging currency exchange risk with respect to any currency
exchanges;
(viii) Capitalized Lease Obligations and Purchase Money Obligations of
the Company and its Subsidiaries in aggregate principal amount (or accreted
value, as applicable) at any time outstanding not to exceed 7.5% of Total
Assets;
(ix) Guarantees by the Company or any of its Subsidiaries of Debt of
the Company or any Subsidiary permitted to be incurred under another
provision of this covenant;
(x) Indebtedness of the Company or any Subsidiary in respect of
performance bonds, bankers' acceptances, trade letters of credit, surety
bonds and guarantees provided by the Company or any Subsidiary in the
ordinary course of business, not to exceed at any given time $5.0 million
outstanding in the aggregate; and
(xi) the incurrence by the Company or any of its Subsidiaries of
additional Debt in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Debt incurred to refund, refinance or replace any other Debt incurred
pursuant to this clause (xi), not to exceed $10.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Debt meets the criteria of more than one of the categories of
Permitted Debt described in clauses (i) through (xi) above or is entitled to be
incurred pursuant to the first paragraph of this covenant, the Company shall, in
its sole discretion, classify such item of Debt in any manner that complies with
this covenant and such item of Debt will be treated as having been incurred
pursuant to only one of such clauses or pursuant to the first paragraph hereof.
Accrual of interest, the accretion of accreted value and the payment of interest
in the form of additional Debt will not be deemed to be an incurrence of Debt
for purposes of this covenant.
Liens.
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly create, incur, assume or suffer
to exist any Lien that secures obligations under any Pari Passu Debt or
Subordinated Debt on any asset or property of the Company or such Subsidiary, or
any income or profits therefrom, or assign or convey any right to receive income
therefrom, unless the Notes are equally and ratably secured with the obligations
so secured or until such time as such obligations are no longer secured by a
Lien.
Merger, Consolidation or Sale of Assets.
The Indenture provides that the Company will not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of either (A) the
United States, any state thereof, the District of Columbia or Singapore or (B) a
70
<PAGE> 72
Subject Country, in which case the Company will have satisfied its obligations
as set forth below under the caption "-- Restrictions Upon Reincorporating,
Merging or Consolidating into a Subject Country"; (ii) the entity or Person
formed by or surviving any such consolidation or merger (if other than the
Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Notes and the Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default exists; and
(iv) except in the case of a merger of the Company with or into a Wholly Owned
Subsidiary of the Company, the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (x) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (y) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Debt pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described above
under the caption "-- Incurrence of Debt and Issuance of Preferred Stock."
Transactions with Affiliates.
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Subsidiary than those that would have been obtained
in a comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee, with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors; provided that (w) any employment agreement or compensation
arrangement entered into by the Company or any of its Subsidiaries in the
ordinary course of business and consistent with the past practice of the Company
or such Subsidiary that is not otherwise prohibited by the Indenture, (x)
transactions between or among the Company and/or its Subsidiaries that are not
otherwise prohibited by the Indenture, and (y) Restricted Payments and Permitted
Investments that are permitted by the provisions of the Indenture described
above under the caption "-- Restricted Payments," and (z) indemnification of
officers and directors in each case, shall not be deemed Affiliate Transactions.
Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) Existing Debt as in effect on the date of the
Indenture, (b) the Credit Facility as in effect as of the date of the Indenture,
and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided that
such amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings are not more restrictive taken as a
whole with respect to such dividend and other payment restrictions than those
contained in the Credit Facility as in effect on the date of the Indenture (as
determined by the Board of Directors of the Company in its reasonable and good
faith judgment), (c) the Indenture and the Notes, (d) applicable law,
71
<PAGE> 73
(e) any instrument governing Debt or Capital Stock of a Person acquired by the
Company or any of its Subsidiaries as in effect at the time of such acquisition
(except to the extent such Debt was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that,
in the case of Debt, such Debt was permitted by the terms of the Indentures to
be incurred, (f) customary non-assignment provisions in leases and other
agreements entered into in the ordinary course of business and consistent with
past practices, restricting assignment or restricting transfers of non-cash
assets, (g) Purchase Money Obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, (h) Permitted Refinancing Debt,
provided that the restrictions contained in the agreements governing such
Permitted Refinancing Debt are not more restrictive taken as a whole than those
contained in the agreements governing the Debt being refinanced (as determined
by the Board of Directors of the Company in its reasonable and good faith
judgment), (i) contracts for the sale of assets, or (j) customary provisions in
agreements with respect to Permitted Joint Ventures.
Sale and Leaseback Transactions.
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, enter into any sale and leaseback transaction; provided
that the Company may enter into a sale and leaseback transaction if (i) the
Company could have (a) incurred Debt in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
above under the caption "-- Incurrence of Debt and Issuance of Preferred Stock"
and (b) incurred a Lien to secure such Debt pursuant to the covenant described
above under the caption "-- Liens," (ii) the gross cash proceeds of such sale
and leaseback transaction are at least equal to the fair market value (as
determined in good faith by the Board of Directors and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and leaseback transaction and (iii) the transfer of assets in such
sale and leaseback transaction is permitted by, and the Company applies the
proceeds of such transaction in compliance with, the covenant described below
under the caption "-- Asset Sales."
Asset Sales.
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 75% of the consideration therefor received by the Company
or such Subsidiary is in the form of cash; provided that the amount of (x) any
liabilities (as shown on the Company's or such Subsidiary's most recent balance
sheet) of the Company or any Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement or other agreement that releases or indemnifies the
Company or such Subsidiary from further liability and (y) any securities, notes
or other obligations received by the Company or any such Subsidiary from such
transferee that are immediately converted by the Company or such Subsidiary into
cash (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds at its option, (a) to permanently repay,
reduce or secure letters of credit in respect of Senior Debt (and to
correspondingly reduce commitments with respect thereto in the case of revolving
borrowings), and/or (b) to the acquisition of a controlling interest in another
business, the making of a capital expenditure or Permitted Investment or the
acquisition of other assets, in each case, for use in the same or a similar line
of business as the Company was engaged in on the date of such Asset Sale or
reasonable extensions thereof. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce indebtedness under the Credit
Facility (or any alternative or subsequent revolving credit agreement where
borrowings thereunder constitute Senior Debt or Debt of a Subsidiary) or
otherwise invest such Net Proceeds in any
72
<PAGE> 74
manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10.0 million, the
Company will be required to make an offer (an "Asset Sale Offer") to all Holders
of Notes and holders of any other Pari Passu Debt outstanding with provisions
requiring the Company to make an offer to purchase or redeem such indebtedness
with the proceeds from any Asset Sale as follows: (A) the Company will make an
offer to purchase from all holders of the Notes in accordance with the
procedures set forth in the Indenture in the maximum principal amount (expressed
as a multiple of $1,000) of Notes that may be purchased out of an amount (the
"Note Amount") equal to the product of such Excess Proceeds multiplied by a
fraction, the numerator of which is the outstanding principal amount of the
Notes, and the denominator of which is the sum of the outstanding principal
amount of the Notes and such Pari Passu Debt (subject to proration in the event
such amount is less than the aggregate Asset Sale Offered Price (as defined
herein) of all Notes tendered), and (B) to the extent required by such Pari
Passu Debt to permanently reduce the principal amount of such Pari Passu Debt,
the Company will make an offer to purchase or otherwise repurchase or redeem
Pari Passu Debt (an "Asset Sale Pari Passu Offer") in an amount (the "Pari Passu
Debt Amount") equal to the excess of the Excess Proceeds over the Note Amount;
provided that in no event will the Company be required to make an Asset Sale
Pari Passu Offer in a Pari Passu Debt Amount exceeding the principal amount of
such Pari Passu Debt plus accrued and unpaid interest thereon plus the amount of
any premium required to be paid to repurchase such Pari Passu Debt. The offer
price for the Notes will be payable in cash in an amount equal to 100% of the
principal amount of the Notes, plus accrued and unpaid interest, if any, to the
date (the "Asset Sale Offer Date") such Asset Sale Offer is consummated (the
"Asset Sale Offered Price"), in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate Asset Sale Offered Price of the
Notes tendered pursuant to the Asset Sale Offer is less than the Note Amount
relating thereto or the aggregate amount of Pari Passu Debt that is purchased in
an Asset Sale Pari Passu Offer is less than the Pari Passu Debt Amount, the
Company may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate principal amount of Notes and Pari Passu Debt surrendered by
holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Upon the completion of the
purchase of all the Notes tendered pursuant to an Asset Sale Offer and the
completion of a Pari Passu Offer, the amount of Excess Proceeds, if any, shall
be reset at zero.
The Indenture provides that, if the Company becomes obligated to make an
Asset Sale Offer pursuant to the immediately preceding paragraph, the Notes and
the Pari Passu Debt shall be purchased by the Company, at the option of the
holders thereof, in whole or in part in integral multiples of $1,000, on a date
that is not earlier than 30 days and not later than 60 days from the date the
notice of the Asset Sale Offer is given to holders, or such later date as may be
necessary for the Company to comply with the requirements under the Exchange
Act.
The Indenture provides that the Company will comply with the applicable
tender offer rules, including Rule 14e-1 under the Exchange Act, and any other
applicable securities laws or regulations in connection with an Asset Sale
Offer.
Limitation on Senior Subordinated Debt.
The Indenture provides that the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Debt that is subordinate or
junior in right of payment to any Senior Debt and senior in any respect in right
of payment to the Notes.
Limitations on Issuances of Guarantees of Debt.
The Indenture provides that the Company will not permit any of its
Subsidiaries, directly or indirectly, to guarantee or pledge any assets to
secure the payment of any Pari Passu Debt or Debt of the Company junior to or
subordinated in right of payment to any Pari Passu Debt unless the Company
causes each such Subsidiary to execute and deliver to the Trustee, prior to or
concurrently with the issuance of such guarantee, a supplemental indenture, in
form satisfactory to the Trustee, pursuant to which such Subsidiary
unconditionally
73
<PAGE> 75
guarantees on a senior subordinated basis the payment of principal of, premium,
if any, and interest on the Notes.
Notwithstanding the foregoing, any such Guarantee by a Subsidiary of the
Notes shall provide by its terms that it (and all Liens securing the same) shall
be automatically and unconditionally released and discharged upon any sale,
exchange or transfer, to any Person not an Affiliate of the Company, of all of
the Company's Capital Stock in, or all or substantially all the assets of, such
Subsidiary, which sale, exchange or transfer is made in compliance with the
applicable provisions of the Indenture.
No Payments for Consents.
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
is paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
Provision for Financial Statements.
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, the Company will
file a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Company has agreed that, for so long as any Notes
remain outstanding, it will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i) Debt of
any other Person existing at the time such other Person is merged with or into
or became a Subsidiary of such specified Person, including, without limitation,
Debt incurred in connection with, or in contemplation of, such other Person
merging with or into or becoming a Subsidiary of such specified Person, and (ii)
Debt secured by a Lien encumbering any asset acquired by such specified Person
which, in each case, is not repaid at or within five days following the date of
such acquisition.
"Additional Amounts" shall have the definition set forth under "Payment of
Additional Amounts." All references herein to payments of principal of, premium,
if any, and interest on the Notes shall be deemed to include any applicable
Additional Amounts that may become payable in respect of the Notes.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "Control"
(including, with correlative meanings, the terms "Controlling," "Controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
74
<PAGE> 76
"Asset Sale" means (i) the sale, lease, transfer, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than in the ordinary course of business (provided that
the sale, lease, transfer, conveyance or other disposition of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole will be governed by the provisions of the Indenture described above under
the caption "Repurchase at the Option of Holders Upon Change of Control" and/or
the provisions described above under the caption "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets" and not by the provisions
of the Asset Sale covenant), and (ii) the issue or sale by the Company or any of
its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in
the case of either clause (i) or (ii), whether in a single transaction or a
series of related transactions (a) that have a fair market value in excess of
$5.0 million or (b) net proceeds in excess of $5.0 million. Notwithstanding the
foregoing: (v) a transfer of assets by the Company to a Subsidiary or by a
Subsidiary to the Company or to another Subsidiary, (w) a disposition of goods
held for sale in the ordinary course of business or obsolete equipment in the
ordinary course of business consistent with past practices of the Company and
its Subsidiaries, (x) assets transferred or disposed of in connection with a
Receivables Program, (y) an issuance of Equity Interests by a Subsidiary to the
Company or to another Subsidiary, and (z) a Restricted Payment or Permitted
Investment that is permitted by the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments" will not be deemed to be Asset
Sales.
"Asset Sale Offer" shall have the definition set forth under "-- Certain
Covenants -- Asset Sales."
"Asset Sale Offer Date" shall have the definition set forth under
"-- Certain Covenants -- Asset Sales."
"Asset Sale Offered Price" shall have the definition set forth under
"-- Certain Covenants -- Asset Sales."
"Asset Sale Pari Passu Offer" shall have the definition set forth under
"-- Certain Covenants -- Asset Sales."
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Borrowing Base" means an amount equal to the sum of (i) 85% of the value
of accounts receivable (before giving effect to any related reserves) shown on
the Company's most recent consolidated balance sheet that are not more than 90
days past due in accordance with GAAP and (ii) 60% of the value of the inventory
shown on the Company's consolidated balance sheet in accordance with GAAP.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to the Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any
75
<PAGE> 77
financial institution meeting the qualifications specified in clause (iii) above
and (v) commercial paper having the highest rating obtainable from Moodys
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within six months after the date of acquisition.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent that
it represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, minus (v) other non-recurring non-cash
items increasing such Consolidated Net Income for such period (which will be
added back to Consolidated Cash Flow in any subsequent period to the extent cash
is received in respect of such item in such subsequent period), in each case, on
a consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent that a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Subsidiary without prior governmental approval (that has not been obtained), and
without direct or indirect restriction pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the ordinary shareholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of
76
<PAGE> 78
such business) subsequent to the date of the Indenture in the book value of any
asset owned by such Person or a consolidated Subsidiary of such Person, (y) all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Credit Agreements" means, with respect to the Company or any Subsidiary,
one or more debt facilities (including, without limitation, the Credit Facility)
or commercial paper facilities with banks or other institutional lenders
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time. Debt under Credit
Agreements outstanding on the date on which Notes are first issued and
authenticated under the Indenture shall be deemed to have been incurred on such
date in reliance on the exception provided by clause (i) of the definition of
Permitted Debt.
"Credit Facility" means, collectively, the Revolving Credit and Term Loan
Agreement dated as of March 27, 1997 by and among the Company, the Bank and the
other lending institutions party thereto and the Bank, as Agent, and the
Revolving Credit Agreement dated as of March 27, 1997 by and among the Company's
United States Subsidiary, the Bank and the other lending institutions party
thereto and the Bank, as Agent, and in each case as amended, modified, renewed,
restated, refunded, replaced or refinanced from time to time.
"Debt" means, with respect to any Person, any indebtedness of such Person,
whether or not contingent, in respect of borrowed money or evidenced by bonds,
notes, debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or banker's acceptances or representing Capital
Lease Obligations or the balance deferred and unpaid of the purchase price of
any property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable, if and to the extent any
of the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Debt of others secured by a
Lien on any asset of such Person (whether or not such Debt is assumed by such
Person) and, to the extent not otherwise included, the Guarantee by such Person
of any Debt of any other Person. The amount of any Debt outstanding as of any
date shall be (i) the accreted value thereof, in the case of any Debt that does
not require current payments of interest, and (ii) the principal amount thereof,
together with any interest thereon that is more than 30 days past due, in the
case of any other Debt.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Debt under the Credit Facility (and
any guarantees thereof) and (ii) any other Senior Debt otherwise designated by
the Company (which designation shall have been approved in writing by the
Representative under the Credit Facility, and such approval shall have been
delivered to the Trustee, so long as (A) the Credit Facility is in effect and
(B) the Company shall not then be a party to a credit facility or similar
arrangement (other than the Credit Facility) that provides for loans in an
aggregate principal amount that is greater than the aggregate principal amount
of loans to the Company that may be made under the Credit Facility and that are
not entered into in violation of the Credit Facility), and the Representative
thereunder, as "Designated Senior Debt" and, in the case of the designation by
the Company, certified in an Officer's Certificate delivered to the Trustee;
provided that not less than $5.0 million aggregate principal amount is
outstanding under Designated Senior Debt at the date of the designation and at
the date of determination.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
77
<PAGE> 79
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Sale" shall have the definition set forth under
"Redemption -- Optional Redemption After Ordinary Shares Offering."
"Existing Debt" means Debt of the Company and its Subsidiaries (other than
Debt under the Credit Facility) in existence on the date of the Indenture, until
such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any
Debt (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Debt, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Subsidiaries following
the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations) and (ii) the consolidated interest expense of such
Person and its Subsidiaries that was capitalized during such period, and (iii)
any interest expense on Debt of another Person that is Guaranteed by such Person
or one of its Subsidiaries or secured by a Lien on assets of such Person or one
of its Subsidiaries (whether or not such Guarantee or Lien is called upon) and
(iv) the product of (a) all dividend payments, whether or not in cash, on any
series of preferred stock of such Person or any of its Subsidiaries, other than
dividend payments on Equity Interests payable solely in Equity Interests of the
Company, times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any Debt.
78
<PAGE> 80
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or currency exchange rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Debt or other obligations), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Debt, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "-- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Debt of such Person or any of its Subsidiaries and (ii)
any extraordinary or nonrecurring gain (but not loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of (i) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, (ii) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements), (iii) any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP, or against
any liabilities associated with the Asset Sale, or the assets subject thereto,
and retained by the Company or any Subsidiary, and (iv) amounts required to be
applied to the repayment of Debt secured by a Lien on the asset or assets that
were the subject of such Asset Sale, or to the satisfaction of contractual
obligations either existing at the date of the Indenture, or entered into after
the date of the Indenture in connection with the payment of deferred purchase
price of the properties or assets that were the subject of such Asset Sale.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Debt.
"Pari Passu Debt" shall mean (i) any Debt of the Company that is pari passu
in right of payment to the Notes and (ii) with respect to any Guarantee of the
Notes, Debt which ranks pari passu in right of payment to such Guaranty.
"Pari Passu Debt Amount" shall have the definition set forth under
"-- Certain Covenants -- Asset Sales."
79
<PAGE> 81
"Permitted Investments" means (a) any Investment in the Company or in a
Subsidiary of the Company that is engaged in the same or a similar line of
business as the Company and its Subsidiaries (or reasonable extensions or
expansions thereof); (b) any Investment in Cash Equivalents; (c) any Investment
by the Company or any Subsidiary of the Company in a Person, if as a result of
such Investment (i) such Person becomes a Subsidiary of the Company that is
engaged in the same or a similar line of business as the Company and its
Subsidiaries (or reasonable extensions or expansions thereof) or (ii) such
Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the Company
or a Subsidiary of the Company that is engaged in the same or a similar line of
business as the Company and its Subsidiaries (or reasonable extensions or
expansions thereof); (d) any Restricted Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described above under the caption
"-- Certain Covenants -- Asset Sales"; (e) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock) of
the Company; (f) Investments made in exchange for accounts receivable arising in
the ordinary course of business which have not been collected for 120 days and
which are, in the good faith of the Company, substantially impaired, provided
that any such Investments in excess of $5 million shall be approved by the Board
of Directors (evidenced by a resolution of the Board of Directors set forth in
an officers' certificate delivered to the Trustee), (g) Investments in Permitted
Joint Ventures, and Investments in suppliers to the Company and its
Subsidiaries, in an aggregate amount when taken together with all other
investments pursuant to this clause (g) does not exceed the greater of $10.0
million or 10% of Total Assets at any one time outstanding, (h) other
Investments in any Person having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (h) that are at the time outstanding, not to exceed $7.5 million.
For purposes of calculating the aggregate amount of Permitted Investments
permitted to be outstanding at any one time pursuant to clauses (g) and (h) of
the preceding sentence, (i) to the extent the consideration for any such
Investment consists of Equity Interests (other than Disqualified Stock) of the
Company, the value of the Equity Interests so issued will be ignored in
determining the amount of such Investment and (ii) the aggregate amount of such
Investments made by the Company and its Subsidiaries on or after the date of the
Indenture will be decreased (but not below zero) by an amount equal to the
lesser of (y) the cash return of capital to the Company or a Subsidiary with
respect to such Investment that is sold for cash or otherwise liquidated or
repaid for cash (less the cost of disposition, including applicable taxes, if
any) and (z) the initial amount of such Investment.
"Permitted Joint Venture" means any Person which is, directly or indirectly
through it subsidiaries or otherwise, engaged principally in the principal
business of the Company, or a reasonably related business, and the Capital Stock
(or securities convertible into Capital Stock) of which is owned by the Company
and one or more Persons other than the Company or any affiliate of the Company.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to a
greater extent than, the Notes are subordinated to Senior Debt pursuant to the
Indenture.
"Permitted Refinancing Debt" means any Debt of the Company or any of its
Subsidiaries issued in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund other Debt of the Company
or any of its Subsidiaries; provided that: (i) the principal amount (or accreted
value, if applicable) of such Permitted Refinancing Debt does not exceed the
principal amount of (or accreted value, if applicable), plus accrued interest
on, the Debt so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection therewith); (ii)
such Permitted Refinancing Debt has a final maturity date later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Debt being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Debt being
extended, refinanced, renewed, replaced, defeased or refunded is subordinated in
right of payment to the Notes, such Permitted Refinancing Debt has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation
80
<PAGE> 82
governing the Debt being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Debt is incurred either by the Company or by the
Subsidiary who is the obligor on the Debt being extended, refinanced, renewed,
replaced, defeased or refunded.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Purchase Money Obligations" of a Person means Debt of such Person incurred
in connection with the purchase, construction or improvement of property, plant
or equipment used in the business of such Person.
"Receivables Program" means, with respect to any Person, an agreement or
other arrangement or program providing for the advance of funds to such Person
against the pledge, contribution, sale or other transfer of encumbrances of
Receivables Program Assets of such Person or such Person and/or one or more of
its Subsidiaries.
"Receivables Program Assets" means all of the following property and
interests in property, whether now existing or existing in the future or
hereafter arising or acquired: (i) accounts, (ii) accounts receivable, general
intangibles, instruments, contract rights, documents and chattel paper
(including, without limitation, all rights to payment created by or arising from
sales of goods, leases of goods, or the rendition of services, no matter how
evidenced, whether or not earned by performance), (iii) all unpaid seller's or
lessor's rights (including, without limitation, rescission, replevin,
reclamation and stoppage in transit) relating to any of the foregoing or arising
therefrom, (iv) all rights to any goods or merchandise represented by any of the
foregoing (including, without limitation, returned or repossessed goods), (v)
all reserves and credit balances with respect to any such accounts receivable or
account debtors, (vi) all letters of credit, security or guarantees of any of
the foregoing, (vii) all insurance policies or reports relating to any of the
foregoing, (viii) all collection or deposit accounts relating to any of the
foregoing, (ix) all books and records relating to any of the foregoing, (x) all
instruments, contract rights, chattel paper, documents and general intangibles
related to any of the foregoing and (xi) all proceeds of any of the foregoing.
"Receivables Program Debt" means, with respect to any Person, the
unreturned portion of the amount funded by the investors under a Receivables
Program of such Person.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Senior Debt" means (i) all Debt of the Company outstanding under Credit
Facilities and all Hedging Obligations with respect thereto, (ii) any other Debt
permitted to be incurred by the Company under the terms of the Indenture, unless
the instrument under which such Debt is incurred expressly provides that it is
on a parity with or subordinated in right of payment to the Notes and (iii) all
Obligations with respect to the foregoing. Notwithstanding anything to the
contrary in the foregoing, Senior Debt will not include (w) any liability for
federal, state, local or other taxes owed or owing by the Company, (x) any Debt
of the Company to any of its Subsidiaries or other Affiliates, (y) any trade
payables or (z) any Debt that is incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Debt, the date on which such payment of interest or
principal was scheduled to be paid in the original documentation governing such
Debt, and shall not include any contingent obligations to repay, redeem or
repurchase any such interest or principal prior to the date originally scheduled
for the payment thereof.
"Subject Country" shall mean any jurisdiction other than the country of
Singapore and the United States of America, or any state thereof or the District
of Columbia.
"Subordinated Debt" means any Debt of the Company which is by its terms
subordinated in right of payment to the Notes.
81
<PAGE> 83
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Total Assets" means, with respect to any date of determination, the total
assets of the Company shown on the Company's consolidated balance sheet in
accordance with GAAP on the last day of the fiscal quarter prior to the date of
determination.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Weighted Average Life to Maturity" means, when applied to any Debt at any
date, the number of years obtained by dividing (i) the sum of the products
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment, by (ii) the then outstanding principal amount of
such Debt.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
PAYMENT OF ADDITIONAL AMOUNTS
The Indenture provides that any amounts paid, or caused to be paid, by the
Company or its assignee (or any successor to the Company or such assignee as
permitted under the Indenture) under the Indenture will be paid without
deduction or withholding for any and all present and future taxes, levies,
imposts or other governmental charges whatsoever imposed, assessed, levied or
collected by or for the account of Singapore (including any political
subdivision or taxing authority thereof) or the jurisdiction of incorporation or
residence (other than the United States or any political subdivision or taxing
authority thereof) of any assignee of the Company or any successor to the
Company, or any subsidiary, branch, division or other entity through which the
Company may from time to time direct any payments of principal, premium, if any,
and interest on the Notes or any political subdivision or taxing authority
thereof (an "Other Jurisdiction"), or, if deduction or withholding of any taxes,
levies, imposts or other governmental charges ("Taxes") shall at any time be
required by Singapore or an Other Jurisdiction, the Company, its assignee or any
relevant successor will (subject to timely compliance by the Holders or
beneficial owners of the relevant Notes with any relevant administrative
requirements) pay or cause to be paid such additional amounts ("Additional
Amounts") in respect of principal of, premium, if any, or interest, as may be
necessary in order that the net amounts paid to the Holders of the Notes or the
Trustee under the Indenture, as the case may be, pursuant to the Indenture,
after such deduction or withholding, shall equal the respective amounts that the
Holder would have received if such Taxes had not been withheld or deducted;
provided, however, that the foregoing shall not apply to (i) any present or
future Taxes which would not have been so imposed, assessed, levied or collected
but for the fact that the Holder or beneficial owner of the relevant Note is or
has been a domiciliary, national or resident of, engages or has been engaged in
business, maintains or has maintained a permanent establishment, or is or has
been physically present in Singapore or the Other Jurisdiction, or otherwise has
or has had some connection with Singapore or the Other Jurisdiction (other than
the holding or ownership of a Note, or the collection of principal of, premium,
if any, and interest on, or the enforcement of, a Note), (ii) any present or
future Taxes which would not have been so imposed, assessed, levied or collected
but for the fact that, where presentation is required, the relevant Note was
presented more than thirty days after the date such payment became due or
82
<PAGE> 84
was provided for, whichever is later, (iii) any present or future Taxes which
are payable otherwise than by deduction or withholding on or in respect of the
relevant Note, (iv) any present or future Taxes which would not have been so
imposed, assessed, levied or collected but for the failure to comply, on a
sufficiently timely basis, with any certification, identification or other
reporting requirements concerning the nationality, residence, identity or
connection with Singapore or the Other Jurisdiction or any other relevant
jurisdiction of the Holder or beneficial owner of the relevant Note, if such
compliance is required by a statute or regulation of Singapore, the Other
Jurisdiction or any other relevant jurisdiction, or by a relevant treaty, as a
condition to relief or exemption from such Taxes, (v) any present or future
Taxes (A) which would not have been so imposed, assessed, levied or collected if
the beneficial owner of the relevant Note had been the Holder of such Note, or
(B) which, if the beneficial owner of such Note had held the Note as the Holder
of such Note, would have been excluded pursuant to clauses (i) through (iv)
above, or (vi) any estate, inheritance, gift, sale, transfer, personal property
or similar tax, assessment or other governmental charge.
Notwithstanding the foregoing, the Indenture does not provide for the
payment of Additional Amounts due to any deduction or withholding requirement
imposed by any governmental unit other than Singapore, an Other Jurisdiction or
a taxing authority or political subdivision thereof.
All references herein to payments of principal of, premium, if any, and
interest on the Notes shall be deemed to include any applicable Additional
Amounts that may become payable in respect of the Notes.
RESTRICTIONS UPON REINCORPORATING, MERGING OR CONSOLIDATING INTO A SUBJECT
COUNTRY
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions (a "Subject
Transaction") to another corporation, Person or entity unless it satisfies
certain conditions. If the surviving or resulting transferee, lessee or
successor Person (the "Successor Corporation") in a Subject Transaction is
incorporated in a Subject Country, then the Company must satisfy the conditions
specified in paragraphs (A), (B) and (C) below as promptly as practicable but no
later than 60 days following the date of such Subject Transaction:
(A) the Company shall have delivered to the Trustee a written opinion,
in form and substance satisfactory to the Trustee, of independent legal
counsel of recognized standing, as to the continued validity, binding
effect and enforceability of the Indenture and the Notes and to the further
effect that such counsel is not aware of any pending change in, or
amendment to, the laws (or any regulations promulgated thereunder) of any
Subject Country in which the proposed Successor Corporation is incorporated
or maintains its principal place of business or principal executive office,
or any taxing authority thereof or therein, affecting taxation, or any
pending execution of or amendment to, or any pending change in application
of or official position regarding, any treaty or treaties affecting
taxation to which any such Subject Country is a party, which, in any such
case, would permit the Company to redeem the Notes as described above under
"Description of the Notes -- Redemption," it being understood that such
counsel may, in rendering such opinion, rely, to the extent appropriate, on
opinions of independent local counsel of recognized standing and the
Company may instead deliver two or more opinions of counsel which together
cover all of the foregoing matters;
(B) the Company shall have delivered to the Trustee a certificate, in
form and substance satisfactory to the Trustee, signed by two executive
officers of the Successor Corporation, as to the continued validity,
binding effect and enforceability of the Indenture and the Notes; and
(C) the Successor Corporation shall, promptly but no later than 60
days following the date of such Subject Transaction, consent to the
jurisdiction of the Courts of the State of New York.
In the event of any Subject Transaction in which the Successor Corporation
is organized and existing under the laws of a Subject Country, the Company will
indemnify and hold harmless the Holder of each Note from and against any and all
present and future taxes, levies, imposts, charges and withholdings (including,
without limitation, estate, inheritance, capital gains and other similar taxes),
and any and all present and future registration, stamp, issue, documentary or
other similar taxes, duties, fees or charges, imposed, assessed,
83
<PAGE> 85
levied or collected by or for the account of any jurisdiction or political
subdivision or taxing or other governmental agency or authority thereof or
therein on or in respect of the Notes, the Indenture or any other agreement
relating to calculations to be performed with respect to the Notes or any amount
paid or payable under any of the foregoing which, in any such case, would not
have been imposed had such Subject Transaction not occurred.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture), (ii) default in payment when due of the principal of, or premium, if
any, on the Notes, (whether or not prohibited by the subordination provisions of
the Indenture), (iii) failure by the Company for 30 days after notice from
either the Trustee or the Holders of at least 25% in principal amount of the
then-outstanding Notes to comply with the provisions described under the
captions "-- Repurchase at the Option of Holders Upon Change of Control,"
"-- Certain Covenants -- Asset Sales," "-- Certain Covenants -- Restricted
Payments," "-- Certain Covenants -- Incurrence of Debt and Issuance of Preferred
Stock" or "-- Certain Covenants -- Merger, Consolidation or Sale of Assets";
(iv) failure by the Company for 60 days after notice from either the Trustee or
the Holders of at least 25% in principal amount of the then-outstanding Notes to
comply with any of its other agreements in the Indenture or the Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Debt for money borrowed
by the Company or any of its Subsidiaries (or the payment of which is guaranteed
by the Company or any of its Subsidiaries) whether such Debt or guarantee now
exists, or is created after the date of the Indenture, which default (a) is
caused by a failure to pay principal of or premium, if any, or interest on such
Debt prior to the expiration of the grace period provided in such Debt on the
date of such default (a "Payment Default") or (b) results in the acceleration of
such Debt prior to its express maturity and, in each case, the principal amount
of any such Debt, together with the principal amount of any other such Debt the
maturity of which has been so accelerated, aggregates $10.0 million or more;
(vi) failure by the Company or any of its Subsidiaries to pay final judgments
aggregating in excess of $10.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; and (vi) certain events of bankruptcy or
insolvency with respect to the Company or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes on October 15, 2002
pursuant to the optional redemption provisions of the Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Notes. If an Event of Default
occurs prior to October 15, 2002 by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company with the intention of
avoiding the prohibition on redemption of the Notes prior to October 15, 2002,
then the premium specified in the Indenture shall also become immediately due
and payable to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its
84
<PAGE> 86
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
All references herein to payments of principal of, premium, if any, and
interest on the Notes shall be deemed to include any applicable Additional
Amounts that may become payable in respect of the Notes.
MODIFICATION OF THE INDENTURE
Except as provided in the next paragraph, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Notes), and any existing default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter or waive the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenants described above under the
caption "-- Repurchase at the Option of Holders Upon Change of Control"), (iii)
reduce the rate of or change the time for payment of interest, including default
interest, on any Note, (iv) waive a Default or Event of Default in the payment
of principal of or premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default that
resulted from such acceleration), (v) make any Note payable in money other than
that stated in the Notes, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders of Notes
to receive payments of principal of or premium, if any, or interest on the
Notes, (vii) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the caption
"-- Repurchase at the Option of Holders Upon Change of Control") or (viii) make
any change in the foregoing amendment and waiver provisions. In addition, any
amendment or supplement to the provisions of Article 10 of the Indenture (which
relate to subordination) will require the consent of the Holders of at least 75%
in aggregate principal amount of the Notes then outstanding if such amendment
would adversely affect the rights of Holders of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
85
<PAGE> 87
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due from the trust referred to below, (ii)
the Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under, any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that on and after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
86
<PAGE> 88
TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
GOVERNING LAW
The Indenture, the Notes and the Registration Rights Agreement will be
governed by, and construed in accordance with, the laws of the State of New
York, without giving effect to the conflicts of law principles thereof.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
the Registration Rights Agreement without charge by writing to Flextronics
International Ltd., Investor Relations, 2090 Fortune Drive, San Jose, California
95131 (telephone (408) 428-1300).
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
General.
Notes will be issued only in fully registered form, without interest
coupons, in minimum denominations of $1,000 and integral multiples thereof,
provided that initial purchasers of Other Notes will be subject to a minimum
initial purchase obligation of $100,000 for each such purchaser. Notes will be
issued at the closing of the Offering (the "Closing") only against payment in
immediately available funds.
Except as set forth in the next paragraph, the Notes to be resold as set
forth herein will initially be issued in the form of one Global Note (the
"Global Note"). The Global Note will be deposited on the date of the closing of
the sale of the Notes offered hereby (the "Closing Date") with, or on behalf of,
The Depository Trust Company (the "Depository") and registered in the name of
Cede & Co., as nominee of the Depository (such nominee being referred to herein
as the "Global Note Holder").
Notes that are (i) originally issued to Institutional Accredited Investors
who are not QIBs or (ii) issued as described below under "-- Certificated
Securities" will be issued in the form of registered definitive certificates
(the "Certificated Securities"). Upon the transfer of Certificated Securities,
such Certificated
87
<PAGE> 89
Securities may, unless the Global Note has previously been exchanged for
Certificated Securities, be exchanged for an interest in the Global Note
representing the principal amount of Notes being transferred.
The Depository is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depository's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depository's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depository's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depository only thorough the Depository's
Participants or the Depository's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Note, the Depository will credit the
accounts of Participants designated by the applicable Initial Purchaser with
portions of the principal amount of the Global Note and (ii) ownership of the
Notes evidenced by the Global Note will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by the
Depository (with respect to the interests of the Depository's Participants), the
Depository's Participants and the Depository's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Notes evidenced by the Global
Note will be limited to such extent. For certain other restrictions on the
transferability of the Notes, see the restrictions set forth on the cover page
and on the inside front cover of this Prospectus.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the
Global Note will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depository or for maintaining, supervising or reviewing
any records of the Depository relating to the Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Note Holder in its capacity as the registered Holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names Notes, including the Global Note, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Notes. The Company believes,
however, that it is currently the policy of the Depository to immediately credit
the accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depository. Payments by the
Depository's Participants and the Depository's Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depository's
Participants or the Depository's Indirect Participants.
Certificated Securities.
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). All such certificated Notes would be subject to the
legend requirements described on the cover page and on the inside front cover
page herein. In addition, if (i) the Company notifies the Trustee in writing
that the Depository is no longer willing or able to act as a depository and the
Company is unable to locate a qualified successor within 90 days or
88
<PAGE> 90
(ii) the Company, at its option, notifies the Trustee in writing that it elects
to cause the issuance of Notes in the form of Certificated Securities under the
Indenture, then, upon surrender by the Global Note Holder of its Global Note,
Notes in such form will be issued to each person that the Global Note Holder and
the Depository identify as being the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depository in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depository for all purposes.
Next Day Settlement and Payment.
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, if any, and interest) be made by
wire transfer of immediately available next day funds to the accounts specified
by the Global Note Holder. With respect to Certificated Securities, the Company
will make all payments of principal, premium, if any, and interest, if any, by
wire transfer of immediately available next day funds to the accounts specified
by the Holders thereof or, if no such account is specified, by mailing a check
to each such Holder's registered address. The Company expects that secondary
trading in the Certificated Securities will also be settled in immediately
available funds.
CERTAIN TAX CONSIDERATIONS
THIS SUMMARY IS OF A GENERAL NATURE AND IS INCLUDED HEREIN SOLELY FOR
INFORMATIONAL PURPOSES. IT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED AS
BEING, LEGAL OR TAX ADVICE. NO REPRESENTATION WITH RESPECT TO THE CONSEQUENCES
TO ANY PARTICULAR PURCHASER OF THE NOTES IS MADE. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES
AND THE EFFECTS OF STATE, LOCAL OR FOREIGN (INCLUDING SINGAPORE AND BERMUDA) TAX
LAWS TO WHICH THEY MAY BE SUBJECT.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following statements represent a general summary of certain United
States federal income tax consequences of the acquisition, ownership and
disposition of the Notes to initial purchasers who are United States citizens or
residents, corporations or partnerships or other entities created or organized
in or under the laws of the United States or any state thereof, an estate the
income of which is subject to United States federal income taxation regardless
of its source, or a trust if a United States court is able to exercise primary
supervision over its administration and one or more United States persons have
the authority to control all of its substantial decisions (for purposes of this
discussion, "U.S. Holders"), and who hold their beneficial interests in the
Notes as capital assets. This discussion is based upon the provisions of the
United States Internal Revenue Code of 1986, as amended (the "Code"),
regulations, rulings and judicial interpretations now in effect, all of which
are subject to change, possibly with retroactive effect. The summary does not
purport to deal with all aspects of United States federal income tax
consequences and does not deal with purchasers who are not U.S. Holders or with
certain classes of U.S. Holders subject to special treatment under United States
federal income tax law, nor does it discuss any aspects of state, local or
foreign tax law. In addition, because tax consequences may differ depending on
individual circumstances, each prospective purchaser of the Notes is strongly
urged to consult his own tax advisor with respect to his particular tax
situation.
Taxation of Interest
Interest paid on a Note generally will be includible in the income of a
U.S. Holder in accordance with the U.S. Holder's regular method of tax
accounting. If Additional Amounts are paid, such payment will be taxable as
ordinary income in accordance with the U.S. Holder's regular method of tax
accounting. Interest and any
89
<PAGE> 91
Additional Amounts will be income from sources outside the United States for
foreign tax credit limitation purposes. Subject to generally applicable
limitations, a U.S. Holder may elect to claim either a deduction or foreign tax
credit in computing its U.S. federal income tax liability for Singapore
withholding taxes, if any, withheld from interest paid on the Note.
Taxation of Dispositions
A U.S. Holder will recognize gain or loss for U.S. federal income tax
purposes upon the sale or other disposition of the Notes in an amount equal to
the difference between the amount realized (other than accrued but unpaid
interest) and the U.S. Holder's tax basis in the Notes. Assuming that the U.S.
Holder has held the Notes as a capital asset, such gain or loss will be capital
gain or loss and will not be short-term capital gain or loss if the Notes have
been held for more than one year. Long-term capital gain realized by an
individual U.S. Holder is generally subject to a maximum tax rate of 28% in
respect of property held for more than one year and not more than 18 months and
to a maximum rate of 20% in respect of property held in excess of 18 months.
Gain generally will be income from U.S. sources for foreign tax credit
limitation purposes. Loss may be treated as foreign source loss by reference to
the source of interest on the Notes. If a U.S. Holder receives any foreign
currency on the sale, redemption or other taxable disposition of Notes, the
holder may recognize ordinary gain or loss due to the currency exchange
fluctuation.
Taxation of Exchange
The exchange of the Old Notes for the New Notes pursuant to the Exchange
Offer will not be treated as an "exchange" for federal income tax purposes
because the New Notes do not differ materially in either kind or extent from the
Old Notes and because the exchange will occur by operation of the terms of the
Old Notes. Rather, the New Notes received by a holder will be treated as a
continuation of the Old Notes in the hands of the holder. As a result, there
generally will be no federal income tax consequences to holders exchange Old
Notes for the New Notes pursuant to the Exchange Offer. In addition, any "market
discount" on the Old Notes should carry over to the New Notes. Holders should
consult their tax advisors regarding the application of the market discount
rules to the New Notes received in exchange for the Old Notes pursuant to the
Exchange Offer.
Information Reporting and Backup Withholding
Payments in respect of Notes (i.e. interest and proceeds from the sale of
the Notes) may be subject to information reporting to the U.S. Internal Revenue
Service and to a 31% U.S. backup withholding tax. Backup withholding will
generally not apply, however, to a holder who furnishes a correct taxpayer
identification number or who is otherwise exempt from backup withholding (such
as a corporation). Generally, a U.S. Holder will provide such certification on
Form W-9 (Request for Taxpayer Identification Number and Certification).
SINGAPORE TAX CONSIDERATIONS
The following summary addresses only the income tax laws of the Republic of
Singapore in force and effect as of the date hereof and is intended as a general
guide only.
Withholding Tax
Subject to the provisions of any applicable tax treaty (there is currently
no tax treaty between Singapore and the United States), non-resident taxpayers,
namely individuals not residing in or corporations not managed and controlled in
Singapore, which derive interest income from Singapore, are subject to a
withholding tax on that income at a rate of 15%, subject to certain exceptions.
Where the Singapore payer is to bear the withholding tax on the gross payment
(where there is no deduction for withholding tax) made to the non-resident the
Singapore withholding tax is payable on the grossed up amount of the payment.
Payments of principal on the redemption of the Notes will not be subject to
withholding tax in Singapore.
90
<PAGE> 92
The interest payments made by the Company under the Notes will not be
subject to withholding tax in Singapore if the Company has a branch office in a
foreign country, the Company makes interest payments on the Notes through such
branch office and none of the proceeds of the Notes are used in Singapore. The
Company intends to make interest payments through its branch office in Bermuda.
Accordingly, interest paid on the Notes will not be subject to withholding tax
in Singapore, as long as the interest payments are made through the branch
office and the proceeds are not used in Singapore.
Capital Gains Tax
Under current Singapore tax law, there is no tax on capital gains.
(However, gains from short-term real property transactions and sales of shares
in certain real property based companies may be subject to income tax in
Singapore.) Thus, any profits from the disposal of the Notes are not taxable in
Singapore unless the seller is regarded as carrying on a trade in securities
dealings in Singapore (in which case, the disposal profits would be treated as
taxable trading profits rather than capital gains and taxed at 26%).
Stamp Duties
There is no stamp duty payable in respect of the holding and disposition of
the Notes issued by the Company where the Notes are issued through the foreign
branch of the Company and such Notes are not brought into Singapore.
Estate Taxation
In the case of an individual who is not domiciled in Singapore, a Singapore
estate tax is imposed on the value of all movable and immovable properties
situated in Singapore. The Notes issued by the Company are considered to be
situated outside Singapore, if the Notes are issued through a foreign branch of
the Company and not brought into Singapore. Thus, an individual shareholder who
is not domiciled in Singapore at the time of his or her death will not be
subject to Singapore estate tax on the value of any such Notes held by the
individual upon the individual's death.
Taxation of Exchange
The exchange of the Old Notes for the New Notes pursuant to the Exchange
Offer will not be treated as a taxable exchange for Singapore tax purposes.
BERMUDA TAX CONSIDERATIONS
Under current Bermuda law, there is no Bermuda income tax, withholding tax,
capital gains tax or capital transfer tax payable by companies incorporated
outside of Bermuda which are issued a permit by the Minister of Finance of
Bermuda to engage in or carry on any trade or business in Bermuda ("Permit
Company"). The Company has obtained a permit from the Minister of Finance of
Bermuda to engage in or carry on business in Bermuda. Permit companies can
obtain an undertaking from the Minister of Finance of Bermuda under The Exempted
Undertakings Tax Protection Act 1966 of Bermuda (as amended) that, in the event
of there being enacted in Bermuda any legislation imposing tax computed on
profits or income, or computed on any capital asset, gain or appreciation, or
any tax in the nature of estate duty or inheritance tax, such tax shall not,
until March 28, 2016, be applicable to such company or any of its operations, or
to the shares or other obligations of such company or its subsidiaries, except
insofar as such Bermuda tax applies to persons ordinarily resident in Bermuda
and holding shares, debentures or other obligations of such company or to any
property leased or let to such company. The Company has obtained such an
undertaking from the Minister of Finance of Bermuda.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in
91
<PAGE> 93
connection with resales of New Notes received in exchange for Old Notes where
the Old Notes were acquired as a result of market-making activities or other
trading activities.
The Company will receive no proceeds in connection with the Exchange Offer.
New Notes received by broker-dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or through brokers or dealers who may receive compensation in the
form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such New Notes. Any broker-dealer that resells New Notes that
were received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act, and any
profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver, and by delivering, a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. The Company has agreed to indemnify such broker-dealers against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon on behalf of
the Company by Allen & Gledhill, Singapore legal advisors to the Company.
INDEPENDENT AUDITORS
The consolidated financial statements of Flextronics as of March 31, 1996
and 1997 and for each of the three years in the period ended March 31, 1997
included in this Prospectus have been audited by Ernst & Young, independent
auditors, as set forth in their report thereon included herein.
AVAILABLE INFORMATION
Flextronics International Ltd. is subject to the informational requirements
of the Exchange Act, and in accordance therewith files reports, proxy statements
and other information with the Securities and Exchange Commission (the
"Commission"). Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington,
D.C. 20549, and at the Commission's following Regional Offices: Suite 1400,
Northwest Atrium Center, 500 West Madison Street, Chicago, Illinois 60661; and
13th Floor, Seven World Trade Center, New York, New York 10048. Copies of such
material can be obtained at prescribed rates from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. The Company's Ordinary Shares are quoted for trading on the Nasdaq
National Market and reports, proxy statements and other information concerning
the Company also may be inspected at the offices of the National Association of
Securities Dealers, 9513 Key West Avenue, Rockville, Maryland 20850. The
Commission maintains a World Wide Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov.
92
<PAGE> 94
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors........................................................ F-2
Flextronics International Ltd. Consolidated Balance Sheets as of March 31, 1996 and
1997................................................................................ F-3
Flextronics International Ltd. Consolidated Statements of Operations for the fiscal
years ended March 31, 1995, 1996 and 1997........................................... F-5
Flextronics International Ltd. Consolidated Statements of Shareholders' Equity for the
fiscal years ended March 31, 1995, 1996 and 1997.................................... F-6
Flextronics International Ltd. Consolidated Statements of Cash Flows for the fiscal
years ended March 31, 1995, 1996 and 1997........................................... F-7
Notes to Consolidated Financial Statements............................................ F-9
Flextronics International Ltd. Condensed Consolidated Balance Sheets as of March 31,
1997 and September 30, 1997 (unaudited)............................................. F-29
Flextronics International Ltd. Condensed Consolidated Statements of Income for the
three and six months ended September 30, 1996 and 1997 (unaudited).................. F-30
Flextronics International Ltd. Condensed Consolidated Statements of Cash Flows for the
six months ended September 30, 1996 and 1997 (unaudited)............................ F-31
Notes to Condensed Consolidated Financial Statements (unaudited)...................... F-32
</TABLE>
F-1
<PAGE> 95
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, 1996 and 1997, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended March 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with United States 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, 1996 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended March 31, 1997, in conformity with United States Generally Accepted
Accounting Principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note 14 of the notes to consolidated financial statements,
the 1996 financial statements have been restated to correct the Company's
accounting for the acquisition of the Astron Group Limited to conform to United
States Generally Accepted Accounting Principles.
/s/ ERNST & YOUNG
ERNST & YOUNG
Singapore
July 31, 1997
F-2
<PAGE> 96
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996* 1997
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash................................................................. $ 6,546 $ 23,645
Accounts receivable, net of allowance for doubtful accounts of $3,576
and $5,658 at March 31, 1996 and 1997 respectively................ 78,114 69,331
Inventories.......................................................... 52,637 106,583
Other current assets................................................. 3,827 10,361
Deferred income taxes................................................ 260 408
-------- --------
Total current assets................................................... 141,384 210,328
-------- --------
PROPERTY AND EQUIPMENT:
Machinery and equipment.............................................. 77,771 100,795
Building............................................................. 5,975 37,758
Leasehold improvements............................................... 15,491 14,584
-------- --------
99,237 153,137
Accumulated depreciation and amortization............................ (37,896) (42,172)
-------- --------
Net property and equipment............................................. 61,341 110,965
-------- --------
OTHER NON-CURRENT ASSETS:
Goodwill, net of accumulated amortization of $2,715 and $3,704, at
March 31, 1996 and 1997 respectively.............................. 13,407 20,865
Intangible assets, net of accumulated amortization of $850 and
$2,496, at March 31, 1996 and 1997 respectively................... 12,227 10,469
Deposits and other................................................... 580 1,812
Receivables from related party....................................... 2,085 2,554
Investment in associated company..................................... -- 2,241
-------- --------
Total other non-current assets....................................... 28,299 37,941
-------- --------
TOTAL ASSETS................................................. $231,024 $359,234
======== ========
</TABLE>
- ---------------
* Restated -- See Note 14
See accompanying notes.
F-3
<PAGE> 97
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996* 1997
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Bank borrowings...................................................... $ 14,379 $111,075
Current portion of long-term debt.................................... 11,073 5,758
Current portion of capital lease.................................. 6,736 6,475
Accounts payable.................................................. 64,625 73,631
Accrued payroll................................................... 5,606 10,680
Other accrued liabilities......................................... 5,389 23,039
Income taxes payable.............................................. 2,775 4,171
Payables to associated company....................................... -- 546
-------- --------
Total current liabilities.............................................. 110,583 235,375
-------- --------
NON CURRENT LIABILITIES:
Notes payable to shareholders........................................ 686 223
Long-term debt, less current portion................................. 7,554 2,165
Other payable........................................................ 24,184 23,547
Capital lease, less current portion.................................. 10,120 10,137
Deferred income taxes................................................ 4,353 3,710
-------- --------
Total non-current liabilities.......................................... 46,897 39,782
-------- --------
Minority interests..................................................... 485 485
-------- --------
SHAREHOLDERS' EQUITY:
Ordinary Shares, S$.01 par value:
Authorized -- 100,000,000 shares at March 31, 1996 and 1997
Issued and outstanding -- 13,213,289 shares at March 31, 1996 and
13,676,243 shares at March 31, 1997.............................. 85 88
Additional paid-in capital........................................ 93,634 95,570
Accumulated deficit............................................... (20,660) (12,066)
-------- --------
Total shareholders' equity............................................. 73,059 83,592
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $231,024 $359,234
======== ========
</TABLE>
- ---------------
* Restated -- See Note 14
See accompanying notes.
F-4
<PAGE> 98
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
----------------------------------
1995 1996* 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $237,386 $448,346 $490,585
Cost of sales.............................................. 214,865 407,457 440,448
-------- -------- --------
Gross profit............................................... 22,521 40,889 50,137
Selling, general and administrative expenses............... 11,468 18,787 26,765
Goodwill amortization...................................... 510 739 989
Intangible assets amortization............................. 245 544 1,646
Provision for plant closings............................... -- 1,254 5,868
Acquired in-process research and development............... 91 29,000 --
-------- -------- --------
Operating income/(loss).................................... 10,207 (9,435) 14,869
Net interest expense....................................... (774) (2,380) (3,885)
Merger expenses............................................ (816) -- --
Foreign exchange gain/(loss)............................... (303) 872 1,168
Income/(loss) from associated company...................... (729) -- 241
Other income/(expense)..................................... 34 (398) (2,718)
-------- -------- --------
Income/(loss) before income taxes.......................... 7,619 (11,341) 9,675
Provision for income taxes................................. 1,463 3,791 2,212
-------- -------- --------
Net income/(loss).......................................... $ 6,156 $(15,132) $ 7,463
======== ======== ========
Earnings per share:
Net income/(loss) per share................................ $0.51 $(1.19) $0.50
======== ======== ========
Weighted average outstanding Ordinary Shares and
equivalents.............................................. 12,103 12,684 14,877
======== ======== ========
</TABLE>
- ---------------
* Restated -- See Note 14
See accompanying notes.
F-5
<PAGE> 99
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ORDINARY SHARES ADDITIONAL TOTAL
--------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
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
Sale of shares for cash in public offering..... 1,000 8 23,492 -- 23,500
Expenses related to sale of shares for cash in
public offering.............................. -- -- (1,190) -- (1,190)
Currency translation adjustments............... -- -- -- (290) (290)
Net loss for the year.......................... -- -- -- (15,132) (15,132)
------ --- ------- -------- -------
BALANCE AT MARCH 31, 1996*..................... 13,213 $ 85 $ 93,634 $(20,660) $73,059
Issuance of Ordinary Shares and Options........ 240 2 1,740 -- 1,742
Currency translation adjustments............... -- -- -- 112 112
Net income for the year........................ -- -- -- 7,463 7,463
Issuance of common stock for Fine Line Printed
Circuit Design Inc........................... 223 1 196 1,019 1,216
------ --- ------- -------- -------
BALANCE AT MARCH 31, 1997...................... 13,676 $ 88 $ 95,570 $(12,066) $83,592
====== === ======= ======== =======
</TABLE>
- ---------------
* Restated -- See Note 14
See accompanying notes.
F-6
<PAGE> 100
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-------------------------------
1995 1996* 1997
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)........................................... $ 6,156 $(15,132) $ 7,463
Adjustments to reconcile net income to cash provided by
operating activities:
nCHIP fiscal year conversion............................. (596) -- --
Depreciation and amortization of equipment and leasehold
improvements........................................... 5,370 9,344 10,940
Amortization of goodwill................................. 510 739 989
Amortization of intangible assets........................ 245 544 1,646
Loss/(gain) on disposal of property and equipment........ 56 (121) (85)
Loss on disposal of investment........................... -- 266 --
Allowance for doubtful debts............................. 1,211 1,675 2,866
Allowance for stock obsolescence......................... 43 1,631 4,228
Loss/(income) from associated company.................... 729 -- (241)
In process research and development written off.......... -- 29,000 --
Provision for plant closure.............................. -- 1,254 5,308
Deferred income taxes.................................... 237 84 (791)
Amortization of discount................................. -- 60 363
Issuance of non-employee stock options................... -- -- 380
-------- -------- ---------
13,961 29,344 33,066
Changes in operating assets and liabilities:
Trade accounts receivable................................ (15,057) (28,965) 7,007
Notes receivable......................................... -- (500) (586)
Inventories.............................................. (3,156) (19,209) (2,533)
Other accounts receivable................................ (2,430) 2,889 (5,678)
Deposits and other....................................... 311 (140) (1,208)
Accounts payable......................................... 2,995 14,143 7,991
Other accrued liabilities................................ (984) 607 6,666
Income taxes payable..................................... 933 1,121 1,396
Amount due from associated company....................... -- -- 546
-------- -------- ---------
Cash provided by (used for) operating activities....... $ (3,427) $ (710) $ 46,667
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... $ (7,536) $(15,812) $ (26,984)
Proceeds from sale of property and equipment................ 38 228 816
Intangibles arising from acquisition of subsidiaries........ (62) -- --
Investment in associated company............................ -- 886 (3,000)
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 --
Loan to related party....................................... -- -- (469)
Purchase of assets from Ericsson............................ -- -- (82,354)
-------- -------- ---------
Cash used for investing activities............................ (10,173) (29,035) (111,991)
-------- -------- ---------
</TABLE>
F-7
<PAGE> 101
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1995 1996* 1997
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from banks....................................... 7,000 43,980 152,761
Repayments to banks......................................... (16,417) (31,700) (56,041)
Proceeds from long-term debt................................ -- 2,873 776
Repayment of long-term debt................................. (8) (1,070) (1,536)
Refinancing of lease assets................................. -- -- 3,509
Repayment of capital lease obligations...................... (4,310) (5,767) (7,991)
Proceeds from issuance of share capital..................... 5,454 1,009 1,362
Payments on notes payable................................... (2,535) (17) (10,463)
Proceeds from secondary listing............................. -- 22,310 --
-------- -------- ---------
Cash provided by/(used for) financing activities......... (10,816) 31,618 82,377
-------- -------- ---------
Increase (decrease) in cash and cash equivalents............ (24,416) 1,873 17,053
Effect of exchange rate changes on cash and cash
equivalents.............................................. -- (78) 46
Cash and cash equivalents at beginning of period............ 29,167 4,751 6,546
-------- -------- ---------
Cash and cash equivalents at end of period............... $ 4,751 $ 6,546 $ 23,645
======== ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest................................................. $ 779 $ 2,482 $ 3,025
Income taxes............................................. 297 2,656 1,717
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Equipment acquired under capital lease obligations.......... 8,338 11,556 6,387
Purchase of subsidiaries financed by issuance of 66,908
ordinary shares valued at $14.019........................ -- 938 --
238,684 ordinary shares valued at $27.262................... -- 6,507 --
223,321 ordinary shares valued at $25.524................... -- -- 5,700
Promissory notes valued at $10 million payable in February
1997..................................................... -- 10,000 --
Promissory notes valued at $5 million payable in February
1998..................................................... -- 5,000 --
Ordinary Shares with a value of $10 million to be issued on
June 30, 1998............................................ -- 10,000 --
Cash and Ordinary Shares valued at $14.124 million to
Stephen Rees at the option of the Company due on June 30,
1998..................................................... -- 14,124 (1,000)
Contingent earnout of $6.25 million payable to Astron
shareholders in April 1997............................... -- -- 6,250
</TABLE>
- ---------------
* Restated -- See Note 14
See accompanying notes.
F-8
<PAGE> 102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
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, Sweden 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 provides advanced contract manufacturing services to
sophisticated original equipment manufacturers (OEMs) in the communications,
computer, consumer and medical electronics industries. Flextronics offers a full
range of services including product design, printed circuit board (PCB) assembly
and fabrication, material procurement, inventory management, final system
assembly and test, packaging and distribution.
The components, subassemblies and finished products manufactured by the
Company incorporate advanced interconnect, miniaturization and packaging
technologies such as SMT, MCM and COB technologies.
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 remeasurement of accounts denominated 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 for the period.
Exchange differences due to such currency translations are recorded in
shareholders' equity.
F-9
<PAGE> 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
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 fifty years).
Concentration of credit risk
The Company is a 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
future operating income before goodwill amortization of the businesses to which
the goodwill relates.
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
Cost
Balance at beginning of the year....................... $ 6,939 $16,122
Additions.............................................. 9,183 8,447
------ -------
Balance at end of the year............................. 16,122 24,569
------ -------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
Amortization
Balance at beginning of the year....................... $ 1,976 $ 2,715
Charge for the year.................................... 739 989
------- -------
Balance at end of the year............................. 2,715 3,704
------- -------
Net book value at end of the year........................ $13,407 $20,865
======= =======
</TABLE>
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.
F-10
<PAGE> 104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
Intangible assets
Intangible assets comprise technical agreements, patents, trademarks,
developed technologies 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 twenty-five years. Purchased
developed technologies are being amortised on a straight line basis over periods
not exceeding seven 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 to twenty years.
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
Cost
Balance at beginning of the year..................... $ 933 $13,077
Additions............................................ 12,144 --
Written off during the year.......................... -- (112)
------- -------
Balance at end of the year........................... 13,077 12,965
------- -------
Amortization
Balance at beginning of the year..................... $ 306 $ 850
Charge for the year.................................. 544 1,646
------- -------
Balance at end of the year........................... 850 2,496
------- -------
Net book value at end of the year...................... $12,227 $10,469
======= =======
</TABLE>
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,
--------------------
1996 1997
------- --------
<S> <C> <C>
Raw materials......................................... $42,202 $ 70,384
Work-in-process....................................... 14,049 16,561
Finished goods........................................ 962 25,809
------- --------
57,213 112,754
Less: allowance for obsolescence...................... (4,576) (6,171)
------- --------
$52,637 $106,583
======= ========
</TABLE>
Revenue recognition
Revenue from product sales and services are recognized on delivery and
acceptance of the goods.
Associated companies
An associated company is a company, not being a subsidiary, in which the
Group has a long-term interest of not less than 20% of the equity and in whose
financial and operating policy decisions the Group exercises significant
influence.
F-11
<PAGE> 105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
The Group's share of the results of associated companies is included in the
consolidated statement of operations. Where the audited accounts are not
co-terminous with those of the Group, the share of profits is arrived at from
the last audited accounts.
Shares in associated companies are stated in the Company's balance sheet at
cost and equity in post-acquisition earnings/(losses). Provision is made for
other than temporary declines in values.
Income taxes
Income taxes have been provided using the liability method in accordance
with SFAS Statement No. 109, "Accounting for Income Taxes".
Stock based compensation
The Company has elected to follow APB opinion 25 "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its employee
options because, as discussed below (see note 10), the alternative fair value
accounting provided for under SFAS 123, "Accounting for Stock-Based
Compensation", requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognised.
Research and development
Research and development costs are recorded as such costs are incurred.
Cost of sales included research and development costs of approximately $913,000
and $153,000 in fiscal 1997 and 1996, respectively.
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).
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact is expected to result in an
increase in primary earnings per share for the years ended March 31, 1995 and
1997 to $0.54 and $0.56 per share, respectively. Statement 128 should have no
effect on primary loss per share for the year ended March 31, 1996. The impact
of Statement 128 on the calculation of fully diluted earnings per share for
these years is not expected to be material.
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
In March 1997 the Company terminated its $48 million US Dollar line of
credit with the group of banks and obtained a new credit facility totalling $175
million representing $105 million revolving credit and $70 million through term
loans amortized over a 5 year period and subject to mandatory prepayment
provisions. As at March 31, 1997, the Company has utilized $111 million of the
new credit facility.
F-12
<PAGE> 106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
The lines of credits are collateralized by:
(a) A floating charge over all the assets and the entire undertaking of the
holding company;
(b) Corporate guarantees from the Company and several of its subsidiaries;
(c) First fixed charge over the securities and a pledge of the Company's
shares in certain of its subsidiaries;
(d) A lien on all accounts receivable and inventory of the Company and
certain of its subsidiaries.
The new credit facilities require that the Company maintains certain
financial ratios and other covenants. In addition, the Company and its
subsidiaries are not allowed to declare dividends for distribution out of
retained earnings. As at March 31, 1997, the Company was in compliance with its
covenants.
In addition, five of the Company's subsidiaries have obtained from several
banks working capital lines of credit, totalling approximately US$10.3 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% per annum.
As of March 31, 1997, the Group had utilized the following credit
facilities under the above lines of credit (in thousands):
<TABLE>
<S> <C>
Short term cash advances.......................................... $111,075
Letters of credits and guarantees................................. $ 985
========
</TABLE>
The remaining unused portion of lines of credit total $64 million.
<TABLE>
<CAPTION>
MARCH 31,
---------------
1996 1997
----- -----
<S> <C> <C>
The weighted average interest rate per annum on all short
term borrowings outstanding as at year end are as
follows:.................................................. 6.41% 8.50%
===== =====
</TABLE>
4. LONG TERM DEBT
Long-term debt consisted of the following at March 31, 1996 and 1997.
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1996 1997
-------- -------
<S> <C> <C>
Term loan at 4.5%....................................... 333 83
Mortgage loans at 11.4%................................. 2,244 1,886
Other loans at 8% -- 9%................................. 1,050 954
Notes payable to Astron's former shareholders at 8%..... 15,000 5,000
-------- -------
18,627 7,923
Less: current portion................................... (11,073) (5,758)
-------- -------
$ 7,554 $ 2,165
======== =======
</TABLE>
Maturities of long-term debt for the five years succeeding March 31, 1997
are $5,758 by March 31, 1998, $469 by March 31, 1999, $469 by March 31, 2000,
$469 by March 31, 2001, $469 by March 31, 2002 and the balance thereafter.
The notes payable is payable to the former shareholders of Astron as part
of the purchase consideration.
F-13
<PAGE> 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
5. OTHER PAYABLES
In accordance to the agreement signed to acquire Astron in February 1996,
the Company will issue Ordinary Shares with a value of $10 million to the former
Astron shareholders on June 30, 1998.
In addition the Company agreed to pay $15 million in June 1998 to an entity
affiliated with Stephen Rees as a consulting fee subject to certain conditions.
In March 1997, the agreement with Mr. Rees' affiliate was revised, the
conditions eliminated and the fee was reduced to $14 million. The cash portion
of $5 million has been discounted at 8% over the period of the agreement and the
remaining $9 million has not been discounted on the basis of the Company's
intention to pay that portion in stock. The payment to former Astron
shareholders and Mr. Rees' affiliate is interest-free and secured.
The components of Other Payables are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
Balance at beginning of the year......................... -- $24,184
Additions during the year.............................. $24,124 --
Amortization of discount............................... 60 363
Amendment of agreement................................. -- (1,000)
------- -------
Balance at end of the year............................... $24,184 $23,547
======= =======
</TABLE>
6. 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):
Fiscal Years Ending March 31,
<TABLE>
<S> <C>
1998............................................................... $ 7,749
1999............................................................... 5,514
2000............................................................... 3,282
2001............................................................... 2,164
2002............................................................... 562
Thereafter......................................................... --
-------
Total installment payments......................................... 19,271
Amount representing interest....................................... (2,659)
-------
Present value of net installment payments.......................... 16,612
Less: current portion.............................................. 6,475
-------
Long-term portion of capital lease................................. $10,137
=======
</TABLE>
Items costing $29,912 (1996: $28,387) with accumulated amortization $11,389
(1996: $8,781) purchased under capital leases have been included in machinery
and equipment as of March 31, 1997. Lease amortization is included in
depreciation expense.
F-14
<PAGE> 108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
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):
Fiscal Years Ending March 31,
<TABLE>
<S> <C>
1998............................................... 3,302
1999............................................... 3,078
2000............................................... 2,404
2001............................................... 1,697
2002............................................... 1,406
Thereafter......................................... 5,518
-------
$17,405
=======
</TABLE>
The facilities lease of one of the subsidiaries provides for escalating
rental payments over the lease period. Rent expense for the lease is being
recognized on a straight-line basis over the term of the lease period. Total
operating lease expenses were $1,957, $2,211 and $2,593 for the years ended
March 31, 1995, 1996 and 1997 respectively.
7. CAPITAL COMMITMENTS
Two of the subsidiaries, Flextronics (Malaysia) Sdn. Bhd. and Astron Group
Limited have contracted to purchase $111 and $10,007 respectively, of fixed
assets as of March 31, 1997. These fixed assets have not been delivered and are
therefore not provided for in the accounts as of March 31, 1997.
Astron Group Limited has authorised but not contracted to purchase $28,927
of fixed assets as at March 31, 1997. A commitment of $9,710 has also been made
to contribute to a subsidiary of Astron Group Limited in PRC China for
construction in progress in relation to the factory in Doumen.
8. INCOME TAXES
The domestic and foreign components of income/(loss) before taxes are as
follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------
1995 1996 1997
------- -------- -------
<S> <C> <C> <C>
Singapore.................................... $(1,529) $(21,977) $ (392)
Foreign...................................... 9,148 10,636 10,067
------- -------- -------
$ 7,619 $(11,341) $ 9,675
======= ======== =======
</TABLE>
F-15
<PAGE> 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
Income tax expense consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Current:
Singapore...................................... $ 366 $1,441 $1,608
Foreign........................................ 860 2,266 1,395
------ ------ ------
1,226 3,707 3,003
------ ------ ------
Deferred:
Singapore...................................... 237 74 (559)
Foreign........................................ -- 10 (232)
------ ------ ------
237 84 (791)
------ ------ ------
$1,463 $3,791 $2,212
====== ====== ======
</TABLE>
Total income tax expense differs from the amount computed by applying the
Singapore statutory income tax rate of 26% (1996 and 1995: 26% and 27%) to
income before taxes as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Computed expected income taxes................ $ 2,057 $(2,950) $ 2,516
Effect of Singapore income tax incentives..... -- (82) --
Effect of losses from non-incentive Singapore
operations.................................. 367 7,822 498
Effect of foreign operations.................. (1,609) (1,785) (2,336)
Non-deductible items:
Amortization of goodwill and intangibles.... 205 329 436
Loss on sale of investments................. -- 69 --
Joint venture losses........................ 216 -- --
Bank commitment fee......................... -- -- 382
Others........................................ 227 388 716
------- ------- -------
$ 1,463 $ 3,791 $ 2,212
======= ======= =======
</TABLE>
F-16
<PAGE> 110
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Fixed assets......................................... $ 1,343 $ 801
Intangible assets.................................... 3,097 2,751
Others............................................... 169 237
-------- --------
4,609 3,789
-------- --------
Deferred tax assets
Fixed assets......................................... (207) (311)
Provision for stock obsolescence..................... (683) (1,364)
Provision for doubtful debts......................... (361) (1,636)
Net operating loss carry forwards.................... (13,805) (16,665)
Unabsorbed capital allowances carry forwards......... (539) (606)
Others............................................... (611) (645)
-------- --------
(16,206) (21,227)
-------- --------
Valuation allowance.................................... 15,690 20,740
-------- --------
Net deferred tax liability............................. $ 4,093 $ 3,302
======== ========
The net deferred tax liability is classified as
follows:
Non-current liability................................ $ 4,353 $ 3,710
Current asset........................................ (260) (408)
-------- --------
$ 4,093 $ 3,302
======== ========
</TABLE>
The Company's net deferred tax assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996 1997
-------- --------
<S> <C> <C>
Net operating loss carried forward
UK................................................. 2,596 3,291
USA................................................ 11,020 13,185
Malaysia........................................... 189 189
Others............................................... 2,145 4,483
-------- --------
Total deferred tax assets............................ 15,950 21,148
Valuation allowance.................................. (15,690) (20,740)
-------- --------
Net deferred tax assets.............................. $ 260 $ 408
======== ========
</TABLE>
At March 31, 1997, the Company had net operating loss carryforwards of
approximately $30,663 for U.S. federal income tax purposes which will expire
between 2003 and 2011 if not previously utilized. Utilization of the U.S. net
operating loss carryforwards may be subject to an annual limitation due to the
change in ownership rules provided by the Internal Revenue Code of 1986. This
limitation and other restrictions provided by the Internal Revenue Code of 1986
may reduce the net operating loss carryforward such that it would not be
available to offset future taxable income of the U.S. subsidiary.
At March 31, 1997, the Company had net operating loss carryforwards of
approximately $9,973 and $632 in U.K. and Malaysia respectively. The utilization
of these net operating loss carryforwards is limited to the future operations of
the Company in the tax jurisdictions in which such carryforwards arose. These
losses carryforward indefinitely.
F-17
<PAGE> 111
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
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
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 fiscal 1996.
(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
facility at Shekou. The Company's operations in Shekou 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.
The Company's investments in its plants in Xixiang and Doumen, China fall
under the "Foreign Investment Scheme" that entitles the Company to apply for a
five-year tax incentive. The Company obtained the incentive for the Doumen plant
in December 1995 and the Xixiang plant in October 1996. With the approval, the
Company's tax rates on income from these facilities during the incentive period
will be 0% in years 1 and 2 and 7.5% in years 3 through 5, commencing in the
first profitable year.
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 tax each year in accordance with the Labuan tax
legislation.
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.
The potential deferred tax asset arises substantially from tax losses
available for carry-forward. These tax losses can only be set off against future
income of the operations in respect of which the tax losses arose.
As a result, management is uncertain as to when or whether these operations
will generate sufficient profit to realise the deferred tax asset benefit.
9. SHAREHOLDERS' EQUITY
Exercise of Options
During the financial year ended March 31, 1997, certain employees exercised
their options to purchase 239,633 Ordinary Shares at an exercise price of
US$0.77 -- US$24.00 per share.
Declaration of Dividends
The Company in a general meeting may by ordinary resolution declare
dividends but no dividend will be payable in excess of the amount recommended by
the directors. As the Company is incorporated in Singapore, all dividends
declared will be denominated in Singapore currency. The Company has not declared
any dividends to date.
F-18
<PAGE> 112
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
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 $2,879 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 outstanding stock of
Astron in exchange for $13,440 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 bear
interest at the rate of 8% per annum.
In addition, the Company will issue $9 million of Ordinary Shares of the
Company on June 30, 1998, in accordance to the revised agreement with Mr.
Stephen Rees' affiliate in March 1997.
Acquisition of Fine Line Printed Circuit Design Inc. ("Fine Line")
On November 25, 1996, the Company acquired all the outstanding stock of
Fine Line in exchange for 223,321 Ordinary Shares of the Company, valued at
$25.52 per share.
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.
Issuance of non-employee stock options
On June 3, 1996, the Company issued 20,000 stock options with an exercise
price of $31.25 to a customer under a sales agreement with the customer that
provided for the issuance of such options upon that customer's reaching a
specified sales target.
These options were valued as of the grant date using the Black-Scholes
model. The resulting value of $380,000 was recorded as a discount in the
accompanying fiscal 1997 income statement.
10. 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.
The Company's 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. In August 1996 the Company's 1993 Share Option Plan was
amended to reserve an additional 500,000 Ordinary Shares for issuance. At March
31, 1997, the Company had reserved 2,000,000 Ordinary Shares for issuance under
the Plan.
In January 1995, the Company acquired nCHIP and thereby assumed the
existing nCHIP stock option plan and 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.
F-19
<PAGE> 113
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
Proforma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to March 31, 1995 under the fair value method of this Statement. The fair value
of these options was estimated at the date of grant using the Black-Scholes
multiple option pricing model with the following weighted average assumptions:
risk-free interest rates ranging from 5.31% to 5.66% and from 5.40% to 5.77% for
1996 and 1997, respectively; a dividend yield of 0.0%, a volatility factor of
the expected market price of the Company's common stock of 0.67, and a
weighted-average expected life of the option of 0.13 years beyond each
respective vesting period.
<TABLE>
<CAPTION>
MARCH 31,
-------------
1996 1997
---- ----
<S> <C> <C>
Options granted 4 year vesting................................. 628 705
Options granted 2 year vesting................................. 15 15
---- ----
Total granted.................................................. 643 720
==== ====
Weighted average vesting period (years)........................ 3.96 3.96
</TABLE>
The weighted average vesting period is rounded to 4 years.
The amount of compensation expense recognized under all Flextronics Share
Option Plans is $1,453 in 1996 and $3,290 in 1997.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those traded options, and because the changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Had the compensation cost for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates for awards under
those plans consistent with the SFAS 123, the Company's net income and earnings
per share would have been reduced to the proforma amounts indicated below:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1997
-------- ------
<S> <C> <C>
Net income/(loss):
As reported............................................ $(15,132) $7,463
Proforma............................................... (16,052) 5,380
Net income/(loss) per share
Primary
As reported......................................... $ (1.19) $ 0.50
Proforma............................................ (1.27) 0.36
</TABLE>
Because SFAS 123 is applicable only to awards granted subsequent to
December 30, 1994, the proforma effect will not be fully reflected until 1998.
F-20
<PAGE> 114
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
The following table presents the activity for options.
<TABLE>
<CAPTION>
1995 1996 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of year.... 1,004,902 $ 3.47 1,026,052 $ 4.76 1,315,970 $12.52
Granted............................. 231,249 8.97 641,783 20.63 721,203 25.10
Exercised........................... (143,699) 2.96 (304,201) 3.30 (239,633) 5.86
Forfeited........................... (66,400) 3.88 (47,664) 11.03 (124,629) 17.81
Outstanding -- end of year.......... 1,026,052 4.76 1,315,970 12.60 1,672,911 18.57
Exercisable at end of year.......... 394,535 414,855 576,896
Weighted average fair value of
options granted during the year... 9.67 9.22 11.25
</TABLE>
11. PROVISION FOR PLANT CLOSURE
The provision for plant closure of $5,868 in fiscal 1997 relates to the
costs incurred in the closure of the Texas facility, the write-off of obsolete
equipment at the nChip semiconductor fabrication facility and downsizing the
Singapore manufacturing operations. The provision includes $2 million provision
for severance payment and $500 provision for the write-off of fixed assets in
the Singapore manufacturing facilities. An amount of $2,808 associated with
certain obsolete equipment at the Company's nChip and Texas facilities have been
written off. The provision also includes severance payments amounting to $560
for the employees of the Texas and nChip facility. The Company has not recorded
the remaining costs related to existing leases at the Texas facility as the
Company is continuing to use the facility for certain administrative and
warehousing functions, and believes it is probable that it will sublease this
facility and that the sublease income will not be materially less than the
remaining obligations under the lease.
The provision for plant closure of $1,254 in fiscal 1996 was associated
with the write off of certain obsolete equipment at the Company's facilities in
Malaysia and Shekou, China.
The components of plant closure costs are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1996 1997
------ ------
<S> <C> <C>
Assets write-off........................................... $1,254 $3,308
Severance payment to employees............................. -- 2,560
------ ------
1,254 5,868
------ ------
Severance payment made during the year..................... -- $ 560
====== ======
</TABLE>
12. BANK COMMITMENT FEES
In March 1997, the Company incurred bank commitment fees of $750 which were
related to a proposed $100.0 million credit facility. This proposed credit
facility was not consummated, and the bank's commitment expired unused at the
end of March, 1997. Accordingly, such fees were included in other expense in the
fiscal 1997 income statement.
13. RELATED PARTY TRANSACTIONS
For the year ended March 31, 1997, the Company had net sales of $1,548 to
Metcal, Inc., a precision heating instrument company. The Company's Chairman and
Chief Executive Officer, Michael E. Marks has a beneficial interest in Metcal,
Inc.
F-21
<PAGE> 115
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
For the year ended March 31, 1996, the Company had net sales of $2,133 to
Metcal, Inc.
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,
1997.
In March 1997, the Company revised the agreement to pay in June 1998 a $15
million consulting fee to an entity affiliated with Stephen JL Rees Senior Vice
President, Worldwide Sales and Marketing. The Company and Mr. Rees agreed to
remove the remaining conditions to payment of the fee and to reduce this amount
of the fee which remains payable in June 1998 to $14 million.
For the year ended March 31, 1997, the Company transacted with Croton Ltd
and Mayfield International Limited ('Mayfield'), both companies of which Stephen
JL Rees has beneficial interests. During the current fiscal year, $118 was paid
for services rendered by Croton Ltd under a management service contract. Astron
has also rented an office from Mayfield, and rentals charged to Astron during
the period amounted to $208. At March 31, 1997 a loan balance in the amount of
$2,554 was due from Mayfield. The loan is unsecured, interest bearing at 7.15%
per annum and is wholly repayable by February 4, 1999.
14. MERGERS, ACQUISITIONS AND STRATEGIC INVESTMENTS
Restatement
The Company has reconsidered its accounting treatment for the acquisition
of the Astron Group Limited ("Astron") and a new independent valuation was
performed as of the date of the acquisition to address certain matters not
addressed in the original valuation. The cost of acquiring Astron has also been
changed from amounts previously reported to correct certain errors. The
allocation of the revised purchase price to the assets acquired is based on the
new valuation report.
The originally reported consideration paid to acquire Astron at February 2,
1996 and the revised cost are as follows:
<TABLE>
<CAPTION>
AS ORIGINALLY
REPORTED AS RESTATED
------------- -----------
<S> <C> <C>
Cash................................................ $13,440 $13,440
Ordinary shares..................................... 6,507 6,507
Ordinary shares to be issued June 30, 1998.......... 10,000 10,000
Promissory notes.................................... 15,000 15,000
Contingent ("earnout") consideration................ 3,125 --(i)
Service agreement................................... -- 14,124(ii)
Direct costs........................................ 700 700
------- -------
Total purchase consideration........................ $48,772 $59,771
======= =======
</TABLE>
- ---------------
(i) Part of the conditions for the contingent earnout have been deemed by
management to have been met based on the management accounts of Astron at
March 31, 1996, but this amount was not accounted for as required by
generally accepted accounting principles where any contingent additional
consideration should be disclosed but not recorded as a liability.
(ii) The consultant and service agreement with an affiliate of the former
Chairman of Astron ("Service Agreement") required a $15 million payment on
June 30, 1998, of which $5 million is payable in cash and the balance in
Ordinary Shares. The Service Agreement was originally deemed a contingent
compensation agreement. However, no compensation expense was recorded in
1996 and no effect was given in the computation of earnings per share to
the portion payable in Ordinary Shares as required by generally accepted
accounting principles. On reconsideration, it was determined that the
agreement should be accounted for as the payment of purchase consideration.
The cash portion is included at its present value as of February 2, 1996,
and the stock portion has been included in the computation of
F-22
<PAGE> 116
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
earnings per share. This Service Agreement was subsequently revised on
March 27, 1997 to remove the remaining conditions to payment of the fee and
reduce the amount payable to $14 million.
In the Company's original accounting for the allocation of the purchase
price, certain intangible assets had been identified and valued. However, due to
an oversight, no value was recorded. The allocation of the purchase price as
originally reported and as reallocated on the basis of the new valuation are as
follows:
<TABLE>
<CAPTION>
AS ORIGINALLY
REPORTED AS RESTATED
------------- -----------
<S> <C> <C>
Astron's net assets at fair value................... $16,960 $17,200
In-process research and development................. 31,562 29,000
Intangible assets................................... 250 11,910
Goodwill............................................ -- 4,758
Less: deferred tax liability........................ -- (3,097)
------- -------
Total............................................... $48,772 $59,771
======= =======
</TABLE>
The Company has restated its March 31, 1996 financial statements to give
effect to the above changes in the consideration, and the new allocation of the
purchase price. The $17.4 million net loss previously reported for the year
ended March 31, 1996 has been reduced by $2.3 million ($0.20 per share) to give
effect to the change in the amount of in-process research and development
written off on acquisition offset in part by the amortization of the recorded
goodwill and the increase in the acquired intangible assets. The per share
amount also includes the effect of restating the weighted average number of
outstanding Ordinary Shares and equivalents.
The effects of the adjustments described above are as follows:
<TABLE>
<S> <C>
Restatement of 1996 Net Loss
Net loss as originally reported................................... $(17,412)
Decrease in amount of in-process research and development written
off............................................................. 2,562
Increase in:
Intangible asset amortization................................... (208)
Goodwill amortization........................................... (14)
Interest expense due from discounting of $5 million cash........ (60)
--------
Net loss as restated.............................................. $(15,132)
========
</TABLE>
The discussion of the Astron acquisition below gives effect to the
restatement of the 1996 amounts.
Current Year
In November 25, 1996, the Company acquired Fine Line Printed Circuit
Design, Inc. ("Fine Line"), a circuit board layout and prototype operation
located in San Jose, California. The acquisition was accounted for as a pooling
of interests and the Company has issued 223,321 Ordinary Shares in exchange for
all of the outstanding capital stock of Fine Line. Prior period financial
statements were not restated because the financial results of Fine Line do not
have a material impact on the consolidated result.
On December 20, 1996, the Company acquired 40% of FICO Investment Holding
Limited ("FICO") for $5.2 million of which $3 million was paid in December 1996
and the balance payment of $2.2 million which was paid in June 1997 was accrued
for in March 1997. The excess of the purchase price over the fair market value
of the net tangible assets acquired amounted to $3.2 million which are being
amortized over ten years. The Company has an option to purchase the remaining of
60% of FICO in 1998; the consideration for the remaining 60% is dependent on the
financial performance of FICO for the period ending December 31, 1997.
F-23
<PAGE> 117
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
On March 27, 1997, the Company acquired the manufacturing facilities in
Karlskrona, Sweden and related inventory, equipment and assets from Ericsson
Business Networks AB ("Ericsson") for $82,354 which was financed by a bank loan.
The transaction has been accounted for under the purchase method and
accordingly, the purchase price has been allocated to the assets based on their
estimated fair market values at the date of acquisition.
The consolidated financial statements contain the results of the acquired
companies from the date of acquisition.
Previous Years
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 was allocated to intangibles which are
being amortized on a straight line basis over their estimated useful life of
three years. 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 $59.8 million by way of cash;
issuance of 238,684 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 had originally agreed to pay an earnout of up to $12.5
million contingent upon Astron meeting certain pre-tax profit for calendar year
1996.
The transaction was 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 valuation firm to be $29 million, and the Company
has written off this $29 million in the consolidated Statement of Operations for
the year ended March 31, 1996. The valuation has also resulted in the allocation
of $16.7 million to goodwill and identifiable intangible assets. Goodwill of
$4.8 million and $11.9 million of identifiable intangible assets principally
related to developed technology, customer list, assembly workforce and
trademarks were recorded.
The consulting and service agreements with an affiliate of the former
Chairman of Astron, provided for an annual fee, plus a $15 million payment to be
made on June 30, 1998 subject to certain terms and conditions. A new agreement
was signed between the two parties in March 1997 which reduced the amount to $14
million and removed the original terms and conditions. This revision to the
agreement has been accounted for as a reduction in the purchase price and
goodwill as of this date of the new agreement.
In March 1997, management negotiated with Stephen Rees, Chairman of Astron
who was representing the former shareholders of Astron, a settlement of the
earnout condition of the Astron purchase agreement discussed above, the amount
of which was in dispute. Substantially all of the former shareholders of Astron
were affiliates of Mr. Rees or members of his family. Concurrently with
negotiation of the earnout payment, management and Mr. Rees renegotiated the
terms and conditions of the Services Agreement among the Company and an
affiliate of Mr. Rees. As a result of these negotiations, management agreed to
pay to the former shareholders of Astron an earnout in the amount of $6.25
million, and Mr. Rees agreed to reduce to $14 million, the amount due to the
affiliate under the Services Agreement. Because of the contemporaneous nature of
these negotiations and the relationship of Mr. Rees to the parties to the
agreements, management determined that the resulting adjustments should each be
accounted for as an adjustment to the cost of
F-24
<PAGE> 118
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
acquiring Astron. Accordingly, $5.25 million has been added in March 1997 to the
goodwill acquired. This amount represents the agreed upon $6.25 million payment
due under the earnout agreement less the $1.0 million reduction in the amount
due under the Services Agreement.
The consolidated financial statements contain the results of the acquired
companies from the date of acquisition.
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 stock 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 and net
loss of $596 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
NINE MONTHS
ENDED
DECEMBER 31,
1994
------------
<S> <C>
Net sales
Company....................................................... $163,249
nCHIP......................................................... 7,623
--------
Combined...................................................... $170,872
========
Net income
Company....................................................... $ 7,626
nCHIP......................................................... (3,400)
--------
Combined...................................................... $ 4,226
========
Other changes in shareholders' equity
Company....................................................... $ (144)
nCHIP......................................................... 5,287
--------
Combined...................................................... $ 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 FTI,
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
F-25
<PAGE> 119
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
over the fair market value of the net tangible assets acquired resulting in
goodwill aggregated approximately $2.4 million and has been allocated to
goodwill which is being amortized on a straight-line basis over its estimated
useful life of twenty-five years.
The operating results of FTI 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, 1995 and 1996 as if the
acquisitions of Assembly & Automation (Electronics) Limited and Astron Group
Limited had occurred as of April 1, 1994 and as if the acquisitions of the net
assets and business of Flextracker and FTI also had, occurred as of April 1,
1994 and after giving effect to certain adjustments including amortization of
intangibles and goodwill. The unaudited proforma information does not include
the effects of acquiring the Karlskrona Facilities in March 1997 because
information relating to its operation prior to the company's acquisition is not
available. The unaudited pro forma information is based on the 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 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, 1994 or 1995 or of
operating results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995 1996
-------------------------------------------------------- -------- -------
<S> <C> <C>
Net sales............................................... $292,219 466,039
Net income.............................................. (872)* 11,977*
Net income per share.................................... (0.07) 0.89
</TABLE>
- ---------------
* Excludes the effects of the write-off of $29,000 of in-process research and
development at the date of the acquisition of Astron.
15. 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,
------------------------
CUSTOMER 1995 1996 1997
----------------------------------------------------- ---- ----- -----
<S> <C> <C> <C>
Visioneer............................................ 1.70% 13.14% 7.00%
Lifescan............................................. 20.1% 14.10% 13.34%
Global Village....................................... 4.50% 10.50% 8.26%
U.S. Robotics........................................ 0.00% 0.00% 10.63%
</TABLE>
F-26
<PAGE> 120
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
Sales for similar classes of products within the Company's business segment
is presented below (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------
PRODUCT TYPE 1995 1996 1997
------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Medical.................................... $ 49,152 $ 78,322 $ 89,682
Computer................................... 77,419 220,930 250,498
Telecommunication.......................... 43,399 60,466 75,947
PCB........................................ -- 4,485 28,470
Industrial................................. -- 9,664 6,832
Consumer products.......................... 47,515 23,858 12,495
MCMs....................................... 11,847.. 19,817 19,214
Others..................................... 8,054 30,804 7,447
-------- -------- --------
$237,386 $448,346 $490,585
======== ======== ========
</TABLE>
A summary of the Company's operations by geographical area for the three
years ended March 31, 1995, 1996 and 1997 was as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------
PRODUCT TYPE 1995 1996 1997
------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
NET SALES:
Singapore:
Unaffiliated customers
Domestic............................ $ 3,596 $ 653 $ 1,401
Export.............................. 7,358 9,277 851
Intercompany.......................... 67,572 77,899 88,054
-------- -------- --------
78,526 87,829 90,306
Hong Kong/China/Mauritius:
Unaffiliated customers
Domestic............................ 17,757 11,838 11,398
Export.............................. -- 2,980 21,203
Intercompany.......................... 29,353 60,780 129,162
-------- -------- --------
47,110 75,598 161,763
USA/Europe/Mexico:
Unaffiliated customers
Domestic............................ $ 50,506 $207,961 $208,225
Export.............................. -- 13,767 2,431
Intercompany.......................... -- 27 9
-------- -------- --------
50,506 221,755 210,665
Malaysia:
Unaffiliated customers
Domestic............................ -- -- --
Export.............................. 158,168 $201,870 $245,075
Intercompany.......................... 4 -- --
-------- -------- --------
158,172 201,870 245,075
Eliminations............................... (96,928) (138,706) (217,224)
-------- -------- --------
$237,386 $448,346 $490,585
======== ======== ========
</TABLE>
F-27
<PAGE> 121
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
<TABLE>
<CAPTION>
MARCH 31,
PRODUCT TYPE 1995 1996 1997
------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
INCOME/(LOSS) FROM OPERATIONS:
Singapore................................ $ 90 $(25,334) $ (184)
Hong Kong/China/Mauritius................ 638 (6,110) 4,787
USA/Mexico............................... (1,290) 4,570 (5,531)
Europe................................... 15 (1,514) (1,829)
Malaysia................................. 10,754 18,953 17,626
-------- -------- --------
$ 10,207 $ (9,435) $ 14,869
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------
PRODUCT TYPE 1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS:
Singapore................................ $ 23,426 $ 48,434 $ 50,118
Hong Kong/China/Mauritius................ 17,020 50,284 68,695
USA/Mexico............................... 26,354 73,552 74,884
Europe................................... 22 11,060 116,919
Malaysia................................. 49,295 47,694 48,618
-------- -------- --------
$116,117 $231,024 $359,234
======== ======== ========
</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.
F-28
<PAGE> 122
PART I -- FINANCIAL INFORMATION
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1997
------------- ---------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Current assets
Cash............................................................ $ 17,825 $ 23,645
Accounts receivable, net........................................ 90,270 69,331
Inventories..................................................... 112,906 106,583
Other current assets............................................ 18,055 10,769
-------- --------
Total current assets.................................... 239,056 210,328
-------- --------
Property and equipment
At cost......................................................... 196,147 153,137
Accumulated depreciation........................................ (48,540) (42,172)
-------- --------
Net property and equipment...................................... 147,607 110,965
-------- --------
Other non-current assets.......................................... 39,637 37,941
-------- --------
Total Assets............................................ $ 426,300 $ 359,234
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank borrowings................................................. $ 81,500 $ 111,075
Current portion of capital lease and long-term debt............. 10,727 12,233
Accounts payable................................................ 96,683 73,631
Other current liabilities....................................... 62,993 38,436
-------- --------
Total current liabilities....................................... 251,903 235,375
-------- --------
Long term debt, less current portion.............................. 66,680 2,165
Other long term payable........................................... -- 23,547
Obligations under capital leases and deferred income taxes........ 10,750 13,847
Notes payable to shareholders..................................... 115 223
Minority interest................................................. 485 485
Shareholders' equity Ordinary shares, $0.01 par value:
Authorized -- 100,000,000 shares at September 30, 1997 and March
31, 1997
Issued and outstanding -- 13,806,855 shares at September 30,
1997 and 13,676,243 shares at March 31, 1997................. 89 88
Additional paid-in capital...................................... 96,559 95,570
Accumulated deficit............................................. (281) (12,066)
-------- --------
Total shareholders' equity...................................... 96,367 83,592
-------- --------
Total Liabilities and Shareholders' Equity.............. $ 426,300 $ 359,234
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-29
<PAGE> 123
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales....................................... $210,087 $122,470 $406,970 $240,359
Costs and expenses:
Cost of sales................................. 188,806 108,207 366,018 214,350
Selling, general and administrative
expenses................................... 9,467 6,568 20,016 12,179
Goodwill and intangible assets amortization... 1,006 660 1,748 1,319
Interest expense, net......................... 4,169 1,078 7,116 2,127
Other income, net............................. (803) (40) (1,418) (573)
-------- -------- -------- --------
202,645 116,473 393,480 229,402
Income before income taxes...................... 7,442 5,997 13,490 10,957
Provision for income taxes...................... 917 859 1,653 1,622
-------- -------- -------- --------
Net income...................................... 6,525 5,138 11,837 9,335
======== ======== ======== ========
Earnings per share:
Net income per share.......................... $ 0.43 $ 0.36 $ 0.78 $ 0.65
======== ======== ======== ========
Weighted average ordinary shares and
equivalents................................... 15,152 14,277 15,107 14,372
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-30
<PAGE> 124
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
SEPTEMBER 30,
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by operating activities.............................. $ 19,131 $ 17,880
-------- --------
Investing activities:
Purchases of property and equipment.................................. (43,950) (12,511)
Proceeds from sale of property and equipment......................... 177 70
Payment for Astron earnout........................................... (6,250) --
Remaining payment to FICO for 40% interest........................... (2,200) --
Other investment..................................................... (2,000) --
-------- --------
Net cash used for investing activities................................. (54,223) (12,441)
-------- --------
Financing activities:
Proceeds from bank borrowings........................................ 147,000 3,553
Repayment of bank borrowings......................................... (111,075) --
Repayment of capital lease obligations............................... (5,820) (2,518)
Repayment of long-term debt.......................................... (1,101) (517)
Proceeds from loan to related party.................................. 17 1,381
Repayment of notes payable........................................... (108) (306)
Net proceeds from issuance of share capital.......................... 989 650
-------- --------
Net cash provided by financing activities.............................. 29,902 2,243
-------- --------
Effect of exchange rate changes on cash................................ (630) --
-------- --------
Net increase/(decrease) in cash........................................ (5,820) 7,682
Cash, beginning of period.............................................. 23,645 6,546
-------- --------
Cash, end of period.................................................... $ 17,825 $ 14,228
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-31
<PAGE> 125
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1997
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the six month period
ended September 30, 1997 are not necessarily indicative of the results that may
be expected for the year ending March 31, 1998.
NOTE B -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
1997 1997
------------- ---------
(IN THOUSANDS)
<S> <C> <C>
Raw materials............................... $ 90,335 $ 64,213
Work-in-process............................. 20,740 16,561
Finished goods.............................. 1,831 25,809
-------- --------
Total....................................... $ 112,906 $ 106,583
======== ========
</TABLE>
NOTE C -- SUBSEQUENT EVENTS
On October 8, 1997, the Company completed an equity offering of 2,185,000
Ordinary Shares including 285,000 shares issued upon the exercise of the
underwriters' over-allotment option. The net proceeds from this offering were
approximately $96.0 million.
On October 15, 1997, the Company completed the sale of $150 million in
senior subordinated notes due 2007. The notes bear interest at 8.75% per annum.
On October 20, 1997, the Company entered into an exchange agreement with
Neutronics Electronic Industries Holding AG (Neutronics), an Austrian PCB
assembly company with operations in Austria and Hungary. Under this exchange
agreement, 92% of the outstanding shares of Neutronics were exchanged for
2,806,000 Ordinary Shares of Flextronics International Ltd on October 30, 1997.
The acquisition will be accounted for as a pooling-of-interests. The combined
company will incur expenses of approximately $4.0 million during the fiscal
quarter ending December 31, 1997 associated with this transaction.
NOTE D -- RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, "Earnings per
Share". SFAS No. 128 establishes a different method of computing net income per
share than is currently required under the provisions of Accounting Principles
Board Opinion No. 15. Under SFAS No. 128, the Company will be required to
present both basic net income per share and diluted net income per share.
The Company plans to adopt SFAS No. 128 in its third fiscal quarter ending
December 31, 1997 and at that time all historical net income per share data
presented will be restated to conform to the provisions of SFAS No. 128. Under
the provisions of SFAS 128, basic net income per share for the three month
periods ended September 30, 1997 and September 30, 1996, would have been $0.47
and $0.39, respectively and basic
F-32
<PAGE> 126
FLEXTRONICS INTERNATIONAL LTD. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
net income per share for the six month periods ended September 30, 1997 and
September 30, 1996 would have been $0.86 and $0.70, respectively. The primary
net income per share presented herein is equal to the diluted net income per
share calculated in accordance with SFAS No. 128.
In February 1997, FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure", which will be adopted by the Company in the fourth
quarter of 1998. SFAS No. 129 requires companies to disclose certain information
about their capital structure. The Company does not anticipate that SFAS No. 129
will have a material impact on its financial statements.
In July 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for fiscal years ending after December 15, 1997. The Company
does not anticipate that SFAS No. 130 will have a material effect on its
financial position, results of operations, or cash flows.
In June 1997, FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information", which is effective for fiscal years
beginning after December 15, 1997. The Company does not anticipate that SFAS No.
131 will have a material impact on its financial statements.
NOTE E -- NET INCOME PER SHARE
Net income per share for each period is calculated by dividing net income
by the weighted average shares of common stock and common stock equivalents
outstanding during the period using the treasury stock method. Common stock
equivalents consist of shares issuable upon the exercise of outstanding common
stock options and warrants. Fully diluted net income per share is substantially
the same as primary net income per share.
F-33
<PAGE> 127
======================================================
NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES
OTHER THAN THE NOTES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF,
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 2
Risk Factors.......................... 9
Enforcement of Civil Liabilities...... 21
Use of Proceeds....................... 21
Capitalization........................ 22
Selected Financial Data............... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 25
Business.............................. 38
Management............................ 49
Executive Compensation................ 51
Description of the Credit Facility.... 54
The Exchange Offer.................... 56
Description of the Notes.............. 63
Certain Tax Considerations............ 89
Plan of Distribution.................. 91
Legal Matters......................... 92
Independent Auditors.................. 92
Available Information................. 92
</TABLE>
======================================================
======================================================
Flextronics International Logo
FLEXTRONICS
INTERNATIONAL LTD.
$150,000,000
------------------------------
PROSPECTUS
------------------------------
DECEMBER , 1997
======================================================
<PAGE> 128
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article 155 of the Company's Articles of Association provides that, subject
to the Companies Act, every director or officer shall be entitled to be
indemnified by the Company against all liabilities incurred by him in the
execution and discharge of his duties or in relation thereto including any
liability in defending any proceedings, civil or criminal, which relate to
anything done or omitted or alleged to have been done or omitted by him as an
officer or employee of the Company and (i) in which judgment is given in his
favor (or the proceedings otherwise disposed of without finding or admission of
any material breach of duty), (ii) in which he is acquitted or (iii) in
connection with any application under any statute for relief from liability in
respect of any such act or omission in which relief is granted to him by the
court and further, that no director or other officer shall be liable for the
acts, receipts, neglects or defaults of any other director or officer or for
joining in any receipt or other act for conformity or for any loss or expense
happening to the Company through the insufficiency or deficiency of title to any
property acquired by order of the directors for the Company or for the
insufficiency or deficiency of any security upon which any of the monies of the
Company are invested or for any loss or damage arising from the bankruptcy,
insolvency or tortious act of any person with whom any monies, securities or
effects are deposited or for any other loss or misfortune which happens in the
execution of his duties unless the same happens through his own negligence,
willful default, breach of duty or breach of trust. Section 172 of the Companies
Act prohibits a company from indemnifying its directors or officers against
liability which by law would otherwise attach to them in respect of any
negligence, default, breach of duty or breach of trust of which they may be
guilty in relation to a Company, except to the extent permitted under Article
155 of the Company's Articles of Association, and any such indemnity is void and
unenforceable. The Company has entered into Indemnification Agreements with its
officers and directors. The Indemnification Agreements provide the Company's
officers and directors with indemnification to the maximum extent permitted by
the Companies Act.
The Company has obtained a policy of directors' and officers' liability
insurance that will insure directors and officers against the cost of defense,
settlement or payment of a judgment under certain circumstances.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ---------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of September 12, 1994 among the
Registrant, nCHIP Acquisition Corporation and nCHIP (the "Reorganization
Agreement"). Certain Disclosure Schedules of nCHIP and the Registrant setting
forth various exceptions to the representations and warranties pursuant to the
Reorganization Agreement have been omitted. The Company agrees to furnish
supple=mentally a copy of any omitted schedule to the Commission upon request.
(Incorporated by reference to Exhibits 2.1 through 2.6 of the Registrant's
registration statement on Form S-4, No. 33-85842.)
2.2 Amendment No. 1 to the Reorganization Agreement dated as of December 8, 1994
among the Registrant, nCHIP Acquisition Corporation and nCHIP. (Incorporated by
reference to Exhibit 2.7 of the Registrant's registration statement on Form S-4.
No. 3385842.)
2.3 Share Purchase Agreement dated as of April 12, 1995 among the Registrant, A&A and
all of the shareholders of A&A. (Incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K for the event reported on April 12,
1995.)
2.4 Asset Sale Agreement dated December 29, 1994 between FlexTracker Sdn. Bhd. and
Flextronics Malaysia Sdn. Bhd. (Incorporated by reference to Exhibit 10.19 of the
Registrant's registration statement on Form S-4, No. 33-85842.)
</TABLE>
II-1
<PAGE> 129
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ---------------------------------------------------------------------------------
<C> <S>
2.5 Agreement among the Registrant, Alberton Holdings Limited and Omac Sales Limited
dated as of January 6, 1996. (Incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K for the event reported on February 2,
1996.)
2.6 Asset Transfer Agreement between Ericsson Business Networks AB and Flextronics
International Sweden AB dated as February 12, 1997. Certain schedules have been
omitted. The Company agrees to furnish supplementally a copy of any omitted
schedule to the Commission upon request. (Incorporated by reference to Exhibit
2.6 of the Registrant's registration statement on Form S-3, No. 333-21715.)
2.7 Exchange Agreement dated October 19, 1997 by and among Registrant, Neutronics
Electronic Industries Holding A.G. and the named Shareholders of Neutronics
Electronic Industries Holding A.G. (Incorporated by reference to Exhibit 2 of the
Registrant's Current Report on Form 8-K for event reported on October 30, 1997.)
3.1 Memorandum of Association of the Registrant. (Incorporated by reference to
Exhibit 3.1 of the Registrant's registration statement on Form S-1, No.
33-74622.)
3.2 Articles of Association of the Registrant. (Incorporated by reference to Exhibit
3.2 of the Registrant's registration statement on Form S-4, No. 33-85842.)
4.1 Indenture dated as of October 15, 1997 between Registrant and State Street Bank
and Trust Company of California, N.A., as trustee. (Incorporated by reference to
Exhibit 10.1 of the Registrant's Current Report on Form 8-K for event reported on
October 15, 1997.)
5.1** Opinion and Consent of Allen & Gledhill with respect to the Ordinary Shares being
registered.
10.1 Form of Indemnification Agreement between the Registrant and its Directors and
certain officers. (Incorporated by reference to Exhibit 10.1 of the Company's
registration statement on Form S-1, No. 33-74622.)
10.2 1993 Share Option Plan. (Incorporated by reference to Exhibit 10.2 of the
Company's registration statement on Form S-1, No. 33-74622.
10.3 Executives' Share Option Scheme, as amended. (Incorporated by reference to
Exhibit 10.3 of the Company's registration statement on Form S-1, No. 33-74622.)
10.4 Executives' Incentive Share Scheme, as amended. (Incorporated by reference to
Exhibit 10.4 of the Company's registration statement on Form S-1, No. 33-74622.)
10.5 nCHIP, Inc. Amended and Restated 1988 Stock Option Plan. (Incorporated by
reference to Exhibit 10.5 of the Company's registration statement on Form S-4,
No. 33-85842.)
10.6* Agreement to Grant Options dated as of June 9, 1995 between the Company and
Lifescan. (Incorporated by reference to Exhibit 10.7 of the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1995.)
10.7 Lease Agreement dated as of October 1, 1994 among Shenzhen Xinan Industrial
Shareholdings Limited, Flextronics Industrial (Shenzhen) Limited and Flextronics
Singapore Pte Ltd. (Incorporated by reference to Exhibit 10.25 of the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1995).
10.8 Lease Agreement dated as of January 2, 1995 between Shenzhen Xinan Industrial
Shareholdings Limited and Flextronics Industrial (Shenzhen) Limited.
(Incorporated by reference to Exhibit 10.25 of the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1995.)
10.9 Services Agreement between the Registrant and Stephen Rees dated as of January 6,
1996. (Incorporated by reference to Exhibit 10.1 of the Company's Current Report
on Form 8-K for the event reported on February 2, 1996.)
</TABLE>
II-2
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ---------------------------------------------------------------------------------
<C> <S>
10.10 Supplemental Services Agreement between Astron and Stephen Rees dated as of
January 6, 1996. (Incorporated by reference to Exhibit 10.2 of the Company's
Current Report on Form 8-K for the event reported on February 2, 1996.)
10.11 Promissory Note dated April 17, 1995 executed by Michael E. Marks in favor of
Flextronics Technologies, Inc. (Incorporated by reference to Exhibit 10.34 to the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995.)
10.12 Service Agreement dated July 8, 1993 between the Registrant and Dennis P.
Stradford. (Incorporated by reference to Exhibit 10.36 of the Company's
registration statement on Form S-1, No. 33-74622.)
10.13 Service Agreement dated July 8, 1993 between the Registrant and Tsui Sung Lam.
(Incorporated by reference to Exhibit 10.37 of the Company's registration
statement on Form S-1, No. 33-74622.)
10.14 Service Agreement dated July 8, 1993 between the Registrant and Goh Chan Peng.
(Incorporated by reference to Exhibit 10.38 of the Company's registration
statement on Form S-1, No. 33-74622.)
10.15* Printed Circuit Board Assembly Services Agreement between Lifescan Inc., a
Johnson & Johnson Company, and the Registration dated November 1, 1992.
(Incorporated by reference to Exhibit 10.41 of the Company's registration
statement on Form S-1, No. 33-74622.)
10.16 Tenancy of Flatted Factory Unit dated February 28, 1996 between Jurong Town
Corporation and the Registrant. (Incorporated by reference to Exhibit 10.44 of
the Company's Annual Report on Form 10-K for fiscal year ended March 31, 1990.)
10.17 Tenancy of Flatted Factory Unit dated May 14, 1993 between Jurong Town
Corporation and the Registrant. (Incorporated by reference to Exhibit 10.45 of
the Company's registration statement on Form S-1, No. 33-74622.)
10.18 Flextronics Asia U.S.A. 401(k) plan. (Incorporated by reference to Exhibit 10.52
of the Company's registration statement on Form S-1, No. 33-74622.)
10.19 Acquisition and Subscription Agreement dated June 30, 1993 between FI Liquidating
Company, Inc., Asian Oceanic Nominees and Custodians Limited, N.T. Butterfield
Trustee (Bermuda) Limited, Overseas Asset Holdings, Inc., JF Asia Select Limited,
the Executive Representative, Flex Holdings Pte Limited, CLG Partners, L.P. and
the Liquidators of Asian Oceanic Nominees and Custodians Limited. (Incorporated
by reference to Exhibit 10.53 of the Company's registration statement on Form
S-1, No. 33-74622.)
10.20 Revolving Credit and Term Loan Agreement dated as of March 27, 1997 among the
Company, The First National Bank of Boston, as Agent, and the other lending
institutions listed on Schedule 1 attached thereto. The Company agrees to furnish
a copy of the omitted schedule to the Commission upon request. (Incorporated by
reference to Exhibit 5(a) of the Company's Current Report on Form 8-K for the
event reported on March 27, 1997.)
10.21 Revolving Credit Agreement dated as of March 27, 1997 among Flextronics
International USA, Inc., The First National Bank of Boston, as Agent, and the
other lending institutions listed of Schedule 1 attached thereto. (Incorporated
by reference to Exhibit 5(b) of the Company's Current Report on Form 8-K for the
event reported on March 27, 1997.)
10.22 Employment and Noncompetition Agreement dated as of April 30, 1997 between
Flextronics International Sweden AB and Ronny Nilsson. (Incorporated by reference
to Exhibit 10.29 of the Company's Annual Report on Form 10-K for fiscal year
ended March 31, 1997.)
10.23 Services Agreement dated as of April 30, 1997 between Flextronics International
USA, Inc. and Ronny Nilsson. (Incorporated by reference to Exhibit 10.30 of the
Company's Annual Report on Form 10-K for fiscal year ended March 31, 1997.)
</TABLE>
II-3
<PAGE> 131
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ---------------------------------------------------------------------------------
<C> <S>
10.24 Promissory Note dated April 15, 1997 executed by Ronny Nilsson in favor of
Flextronics International USA, Inc. (Incorporated by reference to Exhibit 10.31
of the Company's Annual Report on Form 10-K for fiscal year ended March 31,
1997.)
10.25 Letter Agreement dated March 27, 1997 among the Company, Astron Technologies
Limited, Croton Technology Ltd. and Stephen Rees regarding the termination of the
Services Agreement. (Incorporated by reference to Exhibit 10.32 of the Company's
Annual Report on Form 10-K for fiscal year ended March 31, 1997.)
10.26 Letter Agreement dated March 27, 1997 between Astron Group Limited and Stephen
Rees regarding the termination of the Supplemental Services Agreement.
(Incorporated by reference to Exhibit 10.33 of the Company's Annual Report on
Form 10-K for fiscal year ended March 31, 1997.)
10.27 Services Agreement between Flextronics Singapore Pte Limited and Goh Chan Peng
effective as of April 1, 1997. (Incorporated by reference to Exhibit 10.34 of the
Company's Annual Report on Form 10-K for fiscal year ended March 31, 1997.)
10.28 Services Agreement between Astron Technologies Limited and Goh Chan Peng
effective as of April 1, 1997. (Incorporated by reference to Exhibit 10.35 of the
Company's Annual Report on Form 10-K for fiscal year ended March 31, 1997.)
10.29 Services Agreement between Astron Technologies Limited and Tsui Sung Lam
effective as of April 1, 1997. (Incorporated by reference to Exhibit 10.36 of the
Company's Annual Report on Form 10-K for fiscal year ended March 31, 1997.)
10.30 Services Agreement between Flextronics Singapore Pte Limited and Tsui Sung Lam
effective as of April 1, 1997. (Incorporated by reference to Exhibit 10.37 of the
Company's Annual Report on Form 10-K for fiscal year ended March 31, 1997.)
10.31 First Amendment to Revolving Credit and Term Loan Agreement dated as of May 19,
1997 among the Company, BankBoston, N.A. (formerly known as The First National
Bank of Boston), as Agent, and the other lending institutions listed on Schedule
1 attached thereto. (Incorporated by reference to Exhibit 10.38 of the Company's
Annual Report on Form 10-K for fiscal year ended March 31, 1997.)
10.32 First Amendment to Revolving Credit Agreement dated as of May 19, 1997 among
Flextronics International USA, Inc., BankBoston, N.A., as Agent, and the other
lending institutions listed on Schedule 1 attached thereto. (Incorporated by
reference to Exhibit 10.39 of the Company's Annual Report on Form 10-K for fiscal
year ended March 31, 1997.)
10.33 Second Amendment to Revolving Credit and Term Loan Agreement dated as of June 30,
1997 among the Company, BankBoston, N.A., as Agent, and the other lending
institutions listed on Schedule 1 attached thereto. (Incorporated by reference to
Exhibit 10.40 of the Company's Annual Report on Form 10-K for fiscal year ended
March 31, 1997.)
10.34 Second Amendment to Revolving Credit Agreement dated as of June 30, 1997 among
Flextronics International USA, Inc., BankBoston N.A. as Agent, and the other
lending institutions listed on Schedule 1 attached thereto. (Incorporated by
reference to Exhibit 10.41 of the Company's Annual Report on Form 10-K for fiscal
year ended March 31, 1997.)
10.35** Loan Agreement between Flextronics International USA, Inc. as lender, and Michael
E. Marks, as borrower dated November 6, 1997.
10.36** Secured Full Recourse Promissory Note, dated November 6, 1997, executed by
Michael E. Marks in favor of Flextronics International USA, Inc.
12.1** Statement regarding computation of ratios ratio of EBITDA to Interest Expense.
12.2** Statement regarding computation of ratio of Total Debt to EBITDA.
12.3** Statement regarding computation of ratio of earnings to Fixed Charges.
</TABLE>
II-4
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ---------------------------------------------------------------------------------
<C> <S>
21.1** Subsidiaries of Registrant.
23.1*** Consent of Independent Accountants.
23.2 Consent of Allen & Gledhill (included in Exhibit 5.1).
24.1 Power of Attorney (included in the signature page of this Registration
Statement).
25.1** Statement of Eligibility of Trustee.
</TABLE>
- ---------------
* Confidential treatment requested for portions of agreement.
** Previously filed.
*** To be filed by Amendment.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) (i) that is filed pursuant to paragraph (1) immediately preceding, or
(ii) that purports to meet the requirements of Section 10(a)(3) of the Act and
is used in connection with an offering of securities subject to Rule 415, will
be filed as part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 133
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to its registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of San Jose,
State of California, on November 26, 1997.
FLEXTRONICS INTERNATIONAL LTD.
By: /s/ ROBERT R.B. DYKES
------------------------------------
Robert R.B. Dykes
Senior Vice President of
Finance and Administration
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registrant's registration statement has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------- ------------------------------- ------------------
<C> <S> <C>
*/s/ MICHAEL E. MARKS Chairman of the Board, and December 19, 1997
- ------------------------------------- Chief Executive Officer
Michael E. Marks (principal executive officer)
*/s/ TSUI SUNG LAM President, Chief Operating December 19, 1997
- ------------------------------------- Officer and Director
Tsui Sung Lam
/s/ ROBERT R.B. DYKES Senior Vice President of December 19, 1997
- ------------------------------------- Finance and Administration and
Robert R.B. Dykes Director (principal financial
and accounting officer)
*/s/ STEPHEN J.L. REES Chairman, Astron Group Limited December 19, 1997
- ------------------------------------- Director
Stephen J.L. Rees
*/s/ MICHAEL J. MORITZ Director December 19, 1997
- -------------------------------------
Michael J. Moritz
*/s/ RICHARD L. SHARP Director December 19, 1997
- -------------------------------------
Richard L. Sharp
*/s/ PATRICK FOLEY Director December 19, 1997
- -------------------------------------
Patrick Foley
*/s/ ALAIN AHKONG Director December 19, 1997
- -------------------------------------
Alain Ahkong
*/s/ SHING LEONG HUI Director December 19, 1997
- -------------------------------------
Shing Leong Hui
*By: /s/ ROBERT R.B. DYKES
- -------------------------------------
Robert R.B. Dykes
Attorney-in-fact
</TABLE>
II-6
<PAGE> 134
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED PAGE
- ------ -------------------------------------------------------------------- -------------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization dated as of September 12, 1994
among the Registrant, nCHIP Acquisition Corporation and nCHIP (the
"Reorganization Agreement"). Certain Disclosure Schedules of nCHIP
and the Registrant setting forth various exceptions to the
representations and warranties pursuant to the Reorganization
Agreement have been omitted. The Company agrees to furnish
supple=mentally a copy of any omitted schedule to the Commission
upon request. (Incorporated by reference to Exhibits 2.1 through 2.6
of the Registrant's registration statement on Form S-4, No.
33-85842.)
2.2 Amendment No. 1 to the Reorganization Agreement dated as of December
8, 1994 among the Registrant, nCHIP Acquisition Corporation and
nCHIP. (Incorporated by reference to Exhibit 2.7 of the Registrant's
registration statement on Form S-4. No. 3385842.)
2.3 Share Purchase Agreement dated as of April 12, 1995 among the
Registrant, A&A and all of the shareholders of A&A. (Incorporated by
reference to Exhibit 2.1 of the Registrant's Current Report on Form
8-K for the event reported on April 12, 1995.)
2.4 Asset Sale Agreement dated December 29, 1994 between FlexTracker
Sdn. Bhd. and Flextronics Malaysia Sdn. Bhd. (Incorporated by
reference to Exhibit 10.19 of the Registrant's registration
statement on Form S-4, No. 33-85842.)
2.5 Agreement among the Registrant, Alberton Holdings Limited and Omac
Sales Limited dated as of January 6, 1996. (Incorporated by
reference to Exhibit 2.1 of the Registrant's Current Report on Form
8-K for the event reported on February 2, 1996.)
2.6 Asset Transfer Agreement between Ericsson Business Networks AB and
Flextronics International Sweden AB dated as February 12, 1997.
Certain schedules have been omitted. The Company agrees to furnish
supplementally a copy of any omitted schedule to the Commission upon
request. (Incorporated by reference to Exhibit 2.6 of the
Registrant's registration statement on Form S-3, No. 333-21715.)
2.7 Exchange Agreement dated October 19, 1997 by and among Registrant,
Neutronics Electronic Industries Holding A.G. and the named
Shareholders of Neutronics Electronic Industries Holding A.G.
(Incorporated by reference to Exhibit 2 of the Registrant's Current
Report on Form 8-K for event reported on October 30, 1997.)
3.1 Memorandum of Association of the Registrant. (Incorporated by
reference to Exhibit 3.1 of the Registrant's registration statement
on Form S-1, No. 33-74622.)
3.2 Articles of Association of the Registrant. (Incorporated by
reference to Exhibit 3.2 of the Registrant's registration statement
on Form S-4, No. 33-85842.)
4.1 Indenture dated as of October 15, 1997 between Registrant and State
Street Bank and Trust Company of California, N.A., as trustee.
(Incorporated by reference to Exhibit 10.1 of the Registrant's
Current Report on Form 8-K for event reported on October 15, 1997.)
5.1** Opinion and Consent of Allen & Gledhill with respect to the Ordinary
Shares being registered.
</TABLE>
<PAGE> 135
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED PAGE
- ------ -------------------------------------------------------------------- -------------
<C> <S> <C>
10.1 Form of Indemnification Agreement between the Registrant and its
Directors and certain officers. (Incorporated by reference to
Exhibit 10.1 of the Company's registration statement on Form S-1,
No. 33-74622.)
10.2 1993 Share Option Plan. (Incorporated by reference to Exhibit 10.2
of the Company's registration statement on Form S-1, No. 33-74622.
10.3 Executives' Share Option Scheme, as amended. (Incorporated by
reference to Exhibit 10.3 of the Company's registration statement on
Form S-1, No. 33-74622.)
10.4 Executives' Incentive Share Scheme, as amended. (Incorporated by
reference to Exhibit 10.4 of the Company's registration statement on
Form S-1, No. 33-74622.)
10.5 nCHIP, Inc. Amended and Restated 1988 Stock Option Plan.
(Incorporated by reference to Exhibit 10.5 of the Company's
registration statement on Form S-4, No. 33-85842.)
10.6* Agreement to Grant Options dated as of June 9, 1995 between the
Company and Lifescan. (Incorporated by reference to Exhibit 10.7 of
the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1995.)
10.7 Lease Agreement dated as of October 1, 1994 among Shenzhen Xinan
Industrial Shareholdings Limited, Flextronics Industrial (Shenzhen)
Limited and Flextronics Singapore Pte Ltd. (Incorporated by
reference to Exhibit 10.25 of the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1995).
10.8 Lease Agreement dated as of January 2, 1995 between Shenzhen Xinan
Industrial Shareholdings Limited and Flextronics Industrial
(Shenzhen) Limited. (Incorporated by reference to Exhibit 10.25 of
the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1995.)
10.9 Services Agreement between the Registrant and Stephen Rees dated as
of January 6, 1996. (Incorporated by reference to Exhibit 10.1 of
the Company's Current Report on Form 8-K for the event reported on
February 2, 1996.)
10.10 Supplemental Services Agreement between Astron and Stephen Rees
dated as of January 6, 1996. (Incorporated by reference to Exhibit
10.2 of the Company's Current Report on Form 8-K for the event
reported on February 2, 1996.)
10.11 Promissory Note dated April 17, 1995 executed by Michael E. Marks in
favor of Flextronics Technologies, Inc. (Incorporated by reference
to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995.)
10.12 Service Agreement dated July 8, 1993 between the Registrant and
Dennis P. Stradford. (Incorporated by reference to Exhibit 10.36 of
the Company's registration statement on Form S-1, No. 33-74622.)
10.13 Service Agreement dated July 8, 1993 between the Registrant and Tsui
Sung Lam. (Incorporated by reference to Exhibit 10.37 of the
Company's registration statement on Form S-1, No. 33-74622.)
10.14 Service Agreement dated July 8, 1993 between the Registrant and Goh
Chan Peng. (Incorporated by reference to Exhibit 10.38 of the
Company's registration statement on Form S-1, No. 33-74622.)
</TABLE>
<PAGE> 136
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED PAGE
- ------ -------------------------------------------------------------------- -------------
<C> <S> <C>
10.15* Printed Circuit Board Assembly Services Agreement between Lifescan
Inc., a Johnson & Johnson Company, and the Registration dated
November 1, 1992. (Incorporated by reference to Exhibit 10.41 of the
Company's registration statement on Form S-1, No. 33-74622.)
10.16 Tenancy of Flatted Factory Unit dated February 28, 1996 between
Jurong Town Corporation and the Registrant. (Incorporated by
reference to Exhibit 10.44 of the Company's Annual Report on Form
10-K for fiscal year ended March 31, 1990.)
10.17 Tenancy of Flatted Factory Unit dated May 14, 1993 between Jurong
Town Corporation and the Registrant. (Incorporated by reference to
Exhibit 10.45 of the Company's registration statement on Form S-1,
No. 33-74622.)
10.18 Flextronics Asia U.S.A. 401(k) plan. (Incorporated by reference to
Exhibit 10.52 of the Company's registration statement on Form S-1,
No. 33-74622.)
10.19 Acquisition and Subscription Agreement dated June 30, 1993 between
FI Liquidating Company, Inc., Asian Oceanic Nominees and Custodians
Limited, N.T. Butterfield Trustee (Bermuda) Limited, Overseas Asset
Holdings, Inc., JF Asia Select Limited, the Executive
Representative, Flex Holdings Pte Limited, CLG Partners, L.P. and
the Liquidators of Asian Oceanic Nominees and Custodians Limited.
(Incorporated by reference to Exhibit 10.53 of the Company's
registration statement on Form S-1, No. 33-74622.)
10.20 Revolving Credit and Term Loan Agreement dated as of March 27, 1997
among the Company, The First National Bank of Boston, as Agent, and
the other lending institutions listed on Schedule 1 attached
thereto. The Company agrees to furnish a copy of the omitted
schedule to the Commission upon request. (Incorporated by reference
to Exhibit 5(a) of the Company's Current Report on Form 8-K for the
event reported on March 27, 1997.)
10.21 Revolving Credit Agreement dated as of March 27, 1997 among
Flextronics International USA, Inc., The First National Bank of
Boston, as Agent, and the other lending institutions listed of
Schedule 1 attached thereto. (Incorporated by reference to Exhibit
5(b) of the Company's Current Report on Form 8-K for the event
reported on March 27, 1997.)
10.22 Employment and Noncompetition Agreement dated as of April 30, 1997
between Flextronics International Sweden AB and Ronny Nilsson.
(Incorporated by reference to Exhibit 10.29 of the Company's Annual
Report on Form 10-K for fiscal year ended March 31, 1997.)
10.23 Services Agreement dated as of April 30, 1997 between Flextronics
International USA, Inc. and Ronny Nilsson. (Incorporated by
reference to Exhibit 10.30 of the Company's Annual Report on Form
10-K for fiscal year ended March 31, 1997.)
10.24 Promissory Note dated April 15, 1997 executed by Ronny Nilsson in
favor of Flextronics International USA, Inc. (Incorporated by
reference to Exhibit 10.31 of the Company's Annual Report on Form
10-K for fiscal year ended March 31, 1997.)
10.25 Letter Agreement dated March 27, 1997 among the Company, Astron
Technologies Limited, Croton Technology Ltd. and Stephen Rees
regarding the termination of the Services Agreement. (Incorporated
by reference to Exhibit 10.32 of the Company's Annual Report on Form
10-K for fiscal year ended March 31, 1997.)
</TABLE>
<PAGE> 137
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED PAGE
- ------ -------------------------------------------------------------------- -------------
<C> <S> <C>
10.26 Letter Agreement dated March 27, 1997 between Astron Group Limited
and Stephen Rees regarding the termination of the Supplemental
Services Agreement. (Incorporated by reference to Exhibit 10.33 of
the Company's Annual Report on Form 10-K for fiscal year ended March
31, 1997.)
10.27 Services Agreement between Flextronics Singapore Pte Limited and Goh
Chan Peng effective as of April 1, 1997. (Incorporated by reference
to Exhibit 10.34 of the Company's Annual Report on Form 10-K for
fiscal year ended March 31, 1997.)
10.28 Services Agreement between Astron Technologies Limited and Goh Chan
Peng effective as of April 1, 1997. (Incorporated by reference to
Exhibit 10.35 of the Company's Annual Report on Form 10-K for fiscal
year ended March 31, 1997.)
10.29 Services Agreement between Astron Technologies Limited and Tsui Sung
Lam effective as of April 1, 1997. (Incorporated by reference to
Exhibit 10.36 of the Company's Annual Report on Form 10-K for fiscal
year ended March 31, 1997.)
10.30 Services Agreement between Flextronics Singapore Pte Limited and
Tsui Sung Lam effective as of April 1, 1997. (Incorporated by
reference to Exhibit 10.37 of the Company's Annual Report on Form
10-K for fiscal year ended March 31, 1997.)
10.31 First Amendment to Revolving Credit and Term Loan Agreement dated as
of May 19, 1997 among the Company, BankBoston, N.A. (formerly known
as The First National Bank of Boston), as Agent, and the other
lending institutions listed on Schedule 1 attached thereto.
(Incorporated by reference to Exhibit 10.38 of the Company's Annual
Report on Form 10-K for fiscal year ended March 31, 1997.)
10.32 First Amendment to Revolving Credit Agreement dated as of May 19,
1997 among Flextronics International USA, Inc., BankBoston, N.A., as
Agent, and the other lending institutions listed on Schedule 1
attached thereto. (Incorporated by reference to Exhibit 10.39 of the
Company's Annual Report on Form 10-K for fiscal year ended March 31,
1997.)
10.33 Second Amendment to Revolving Credit and Term Loan Agreement dated
as of June 30, 1997 among the Company, BankBoston, N.A., as Agent,
and the other lending institutions listed on Schedule 1 attached
thereto. (Incorporated by reference to Exhibit 10.40 of the
Company's Annual Report on Form 10-K for fiscal year ended March 31,
1997.)
10.34 Second Amendment to Revolving Credit Agreement dated as of June 30,
1997 among Flextronics International USA, Inc., BankBoston N.A. as
Agent, and the other lending institutions listed on Schedule 1
attached thereto. (Incorporated by reference to Exhibit 10.41 of the
Company's Annual Report on Form 10-K for fiscal year ended March 31,
1997.)
10.35** Loan Agreement between Flextronics International USA, Inc. as
lender, and Michael E. Marks, as borrower dated November 6, 1997.
10.36** Secured Full Recourse Promissory Note, dated November 6, 1997,
executed by Michael E. Marks in favor of Flextronics International
USA, Inc.
12.1** Statement regarding computation of ratio of EBITDA to Interest
Expense.
12.2** Statement regarding computation of ratio of Total Debt to EBITDA.
12.3** Statement regarding computation of ratio of earnings to Fixed
Charges.
21.1** Subsidiaries of Registrant.
</TABLE>
<PAGE> 138
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED PAGE
- ------ -------------------------------------------------------------------- -------------
<C> <S> <C>
23.1*** Consent of Independent Accountants.
23.2** Consent of Allen & Gledhill (included in Exhibit 5.1).
24.1** Power of Attorney (included in the signature page of this
Registration Statement).
25.1** Statement of Eligibility of Trustee.
</TABLE>
- ---------------
* Confidential treatment requested for portions of agreement.
** Previously filed.
*** To be filed by Amendment.
