<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 13, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FLEXTRONICS INTERNATIONAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
SINGAPORE 0-23354 NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION) NO.)
</TABLE>
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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:
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<S> <C>
GORDON K. DAVIDSON, ESQ. DANIEL J. WINNIKE, ESQ.
DAVID K. MICHAELS, ESQ. RICHARD G. COSTELLO, ESQ.
TRAM T. PHI, ESQ. HOWARD, RICE, NEMEROVSKI, CANADY, FALK & RABKIN,
FENWICK & WEST LLP A PROFESSIONAL CORPORATION
TWO PALO ALTO SQUARE THREE EMBARCADERO CENTER, 7TH FLOOR
PALO ALTO, CALIFORNIA 94306 SAN FRANCISCO, CALIFORNIA 94111
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, 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. [ ] _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS AMOUNT OFFERING PRICE AGGREGATE AMOUNT OF
OF SECURITIES TO BE PER OFFERING REGISTRATION
TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) FEE
<S> <C> <C> <C> <C>
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Ordinary Shares, par value S$0.01 per
share.............................. 2,012,500 $26.375 $53,079,688 $16,084.76
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</TABLE>
(1) Includes 262,500 shares issuable upon exercise of an option granted by the
Company to the Underwriters to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee, pursuant to Rule 457(c) under the Securities Act of 1933,
based on the average of the high and low prices of the Ordinary Shares on
the Nasdaq National Market on February 11, 1997.
------------------------
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 OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
The Registration Statement contains two forms of prospectus, one to be used
in connection with a United States underwritten offering (the "U.S.
Prospectus"), and one to be used in connection with a concurrent international
underwritten offering (the "International Prospectus" and, together with the
U.S. Prospectus, the "Prospectuses"). The Prospectuses will be identical in all
respects except for the front cover page, the section entitled "Underwriting"
and the outside back cover page.
The form of the U.S. Prospectus is included herein and the form of the
front cover page, "Underwriting" section and outside back cover page of the
International Prospectus are included following the back cover page of the U.S.
Prospectus as pages X-1 through X-5.
<PAGE> 3
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 jurisdiction in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction.
SUBJECT TO COMPLETION FEBRUARY 12, 1997
1,750,000 ORDINARY SHARES
[LOGO]
All of the 1,750,000 Ordinary Shares offered hereby are being sold by
Flextronics International Ltd. ("Flextronics" or the "Company"). Of the
1,750,000 Ordinary Shares offered hereby, 1,312,500 shares initially are being
offered in the United States and Canada by the U.S. Underwriters and 437,500
shares initially are being offered in a concurrent offering outside the United
States and Canada by the International Managers. The public offering price and
the underwriting discount per share are identical for both of the offerings. See
"Underwriting."
The Company's Ordinary Shares are quoted on the Nasdaq National Market
under the symbol "FLEXF." On February 11, 1997, the last reported sale price for
the Ordinary Shares was $26 1/4 per share. See "Price Range of Ordinary Shares."
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE ORDINARY SHARES
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.
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<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
<S> <C> <C> <C>
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Per Share................................... $ $ $
Total(3).................................... $ $ $
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</TABLE>
(1) See "Underwriting" for information concerning indemnification of the U.S.
Underwriters and the International Managers and other matters.
(2) Before deducting expenses payable by the Company estimated at $360,000.
(3) The Company has granted to the U.S. Underwriters and the International
Managers 30-day options to purchase up to 196,875 and 65,625 additional
Ordinary Shares, respectively, in each case solely to cover over-allotments,
if any. If these options are exercised in full, the Price to Public will
total $ , the Underwriting Discount will total $ , and
the Proceeds to Company will total $ .
The Ordinary Shares are offered by the U.S. Underwriters and the
International Managers subject to receipt and acceptance by them and subject to
their right to reject any order in whole or in part. It is expected that
delivery of the certificates representing such shares will be made against
payment therefor at the office of Montgomery Securities on or about
, 1997.
------------------------
MONTGOMERY SECURITIES
COWEN & COMPANY
SALOMON BROTHERS INC
UBS SECURITIES
The date of this Prospectus is , 1997.
<PAGE> 4
AVAILABLE INFORMATION
Flextronics International Ltd. is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (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.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), with respect to the securities offered by this
Prospectus. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement. Statements made in this
Prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete and in each instance in which a copy of such
contract is filed as an exhibit to the Registration Statement, reference is made
to such copy, and each such statement shall be deemed qualified in all respects
by such reference. Copies of the Registration Statement may be inspected,
without charge, at the offices of the Commission, or obtained at prescribed
rates from the Public Reference Section of the Commission at the address set
forth above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Company are hereby
incorporated by reference into this Prospectus except as superseded or modified
herein: (1) the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1996; (2) the Company's definitive proxy statement dated June 25,
1996; (3) the Company's Quarterly Reports on Form 10-Q for the fiscal quarters
ended June 30, 1996 and September 30, 1996; (4) the Company's Current Report on
Form 8-K as amended on Form 8-K/A for the event reported on April 12, 1995; (5)
the Company's Current Report on Form 8-K as amended on Form 8-K/A for the event
reported on February 2, 1996; (6) the Company's Current Report on Form 8-K for
the event reported on December 13, 1996; and (7) the description of the
Company's Ordinary Shares set forth in the Company's Registration Statement on
Form 8-A filed with the Commission on January 28, 1994. All documents filed by
the Company with the Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act after the date of this Prospectus and prior to the termination
of the offering of the shares offered hereby shall be deemed to be incorporated
by reference into this Prospectus and to be a part hereof from the date of
filing of such documents. Any statement contained in any document incorporated
or deemed to be incorporated by reference herein shall be deemed to be modified
or superseded for purposes of this Prospectus to the extent that a statement
contained herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as modified or superseded, to
constitute a part of this Prospectus. The Company will provide without charge to
each person, including any beneficial owner, to whom this Prospectus is
delivered, upon written or oral request of such person, a copy of any and all of
the documents that have been or may be incorporated by reference herein (other
than exhibits to such documents which are not specifically incorporated by
reference into such documents). Such requests should be directed to Flextronics
International Ltd., Investor Relations, 2241 Lundy Avenue, San Jose, California
95131, telephone number (408) 428-1300.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE ORDINARY SHARES
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE
OVER-THE-COUNTER MARKET, OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS (AND SELLING GROUP
MEMBERS) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE ORDINARY SHARES
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 10B-6A UNDER THE
SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE> 5
PROSPECTUS 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 or incorporated by
reference 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. Except as otherwise noted, (i) all monetary
amounts in this Prospectus are presented in U.S. dollars and (ii) all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option. See "Underwriting."
THE COMPANY
Flextronics International Ltd. ("Flextronics" or the "Company") is a
leading provider of advanced contract manufacturing services to original
equipment manufacturers ("OEMs") in the communications, computer, consumer
electronics and medical 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
test, packaging and distribution. The components, subassemblies and finished
products manufactured by Flextronics incorporate advanced interconnect,
miniaturization and packaging technologies, such as surface mount ("SMT"),
multichip module ("MCM") and chip-on-board ("COB"). The Company's strategy is to
use its global 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, Asia and Northern
Europe. The Company's customers include Advanced Fibre Communications, Ascend
Communications, Braun/ThermoScan, Cisco Systems, Diebold, Harris DTS, Lifescan
(a Johnson & Johnson company), Microsoft, Philips Electronics and U.S. Robotics.
In February 1997, the Company entered into a definitive agreement to
acquire from Ericsson Business Networks AB ("Ericsson") 330,000 square feet of
manufacturing facilities in Karlskrona, Sweden and related inventory, equipment
and other assets (the "Karlskrona Facilities"), for approximately 792 million
Swedish kronor (approximately $109.2 million based on exchange rates at January
31, 1997), substantially expanding the Company's Northern European operations.
See "Acquisition of Karlskrona Facilities." The Company intends to use the net
proceeds of this offering to pay a portion of the purchase price for the
Karlskrona Facilities. The Karlskrona Facilities currently assemble PCBs,
network switches, cordless base stations and other components for the business
communications systems sold by Ericsson. As a part of this transaction, the
Company and Ericsson entered into a multi-year purchase agreement under which
the Company will manufacture certain of these products for Ericsson. The Company
believes that many European OEMs in the telecommunications and other industries
are beginning to outsource the manufacture of significant product lines, and
that the acquisition of the Karlskrona Facilities positions it to capitalize on
this trend. See "Acquisition of Karlskrona Facilities," "Risk Factors -- Risks
of Ericsson Transaction" and "Use of Proceeds."
Since 1994, the Company has substantially expanded its manufacturing
capacity, technological capabilities and service offerings, both through
acquisitions and internal growth. In fiscal 1994, the Company added U.S.
manufacturing capabilities by acquiring Relevant Industries, Inc. ("Relevant"),
a final assembly contract manufacturer located in San Jose, California. In
fiscal 1995, the Company: acquired nCHIP, Inc. ("nCHIP"), a leader in the design
and manufacture of MCMs; added Northern European manufacturing capabilities
through the acquisition of Assembly & Automation (Electronics) Ltd. ("A&A"), a
contract manufacturer located in the United Kingdom; and opened new facilities
in China and Texas. In fiscal 1996, the Company obtained miniature gold-finished
PCB fabrication capabilities and expanded its presence in China by acquiring
Astron Group Ltd. ("Astron"). In fiscal 1997, the Company: expanded its advanced
PCB design capabilities by acquiring Fine Line Printed Circuit Design, Inc.
("Fine Line"); expanded its presence in China by investing in FICO Investment
Holding Limited ("FICO"), a producer of plastic injection moldings; and opened
an additional manufacturing facility in San Jose, California. The Company is
continuing to consolidate and expand its manufacturing operations by developing
integrated campuses in Doumen, China and Guadalajara, Mexico and adding
facilities in San Jose, California, while closing its plant in Texas and
discontinuing manufacturing in Singapore.
3
<PAGE> 6
THE OFFERING
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<S> <C>
Ordinary Shares offered by the Company....... 1,750,000 shares
Ordinary Shares to be outstanding after the
offering................................... 15,374,396 shares(1)
Use of proceeds.............................. Payment of a portion of the purchase price for
the Karlskrona Facilities and working capital(2)
Nasdaq National Market symbol................ FLEXF
</TABLE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
--------------------------------------------------- -------------------
1992 1993 1994 1995 1996(3) 1995 1996(4)
------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales............... $80,729 $100,759 $131,345 $237,386 $448,346 $322,645 $362,264
Operating income
(loss)............... (3,222) 1,365 3,835 10,207 (11,775) 15,146 14,152
Net income (loss)....... (6,518) (1,228) 2,151 6,156 (17,412) 11,626 10,536
Net income (loss) per
share................ $ (0.89) $ (0.17) $ 0.28 $ 0.51 $ (1.39) $ 0.89 $ 0.73
Weighted average
outstanding Ordinary
Shares and
equivalents.......... 7,284 7,382 7,730 12,103 12,536 13,130 14,377
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------
AS ADJUSTED
ACTUAL AS ADJUSTED(5) PRO FORMA(5)(6)
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<S> <C> <C> <C>
Balance Sheet Data:
Working capital..................................... $ 26,205 $ 69,486 $133,486
Net property and equipment.......................... 71,001 71,001 102,781
Total assets........................................ 217,934 261,215 358,415
Long-term debt and capital lease obligations,
excluding current portion........................ 28,019 28,019 128,019
Shareholders' equity................................ 83,602 126,818 126,818
</TABLE>
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(1) Does not include options outstanding as of December 31, 1996 to acquire
1,795,435 shares with a weighted average exercise price of $17.93 per share,
and an additional 299,016 shares reserved for issuance pursuant to the
Company's 1993 Share Option Plan.
(2) See "Risk Factors -- Risks of Ericsson Transaction."
(3) In the fourth quarter of fiscal 1996, the Company wrote off $31.6 million of
in-process research and development associated with the acquisition of
Astron and also recorded charges totaling $2.5 million for costs associated
with the closing of one of the Company's Malaysian plants and its Shekou,
China operations. Without taking these write-offs and charges into account,
the Company's net income and net income per share would have been $16.6
million and $1.25, respectively, in fiscal 1996.
(4) In the third quarter of fiscal 1997, the Company incurred plant closing
expenses of $2.3 million in connection with the closing of its Texas
facility and the write-off of obsolete equipment at the nCHIP semiconductor
fabrication facility.
(5) Adjusted to reflect the sale of the 1,750,000 Ordinary Shares offered by the
Company hereby (at an assumed public offering price of $26.25 per share and
after deducting the estimated underwriting discount and offering expenses
payable by the Company) and the receipt of the net proceeds therefrom. See
"Use of Proceeds."
(6) Gives pro forma effect to (i) the acquisition of the Karlskrona Facilities,
(ii) the incurrence of $100.0 million principal amount of indebtedness by
the Company, all of which is assumed to be long-term debt (although the
Company is evaluating its financing strategy and may also utilize short-term
debt), and (iii) the application of the net proceeds of such indebtedness as
well as the sale of Ordinary Shares offered hereby by the Company to pay the
purchase price for the Karlskrona Facilities and for working capital, in
each case as if such transactions had been consummated on December 31, 1996.
4
<PAGE> 7
ACQUISITION OF KARLSKRONA FACILITIES
In February 1997, the Company entered into an Asset Transfer Agreement (the
"Asset Transfer Agreement") to acquire from Ericsson Business Networks AB two
manufacturing facilities located in Karlskrona, Sweden and related inventory,
equipment and other assets for approximately $792 million Swedish kronor
(approximately $109.2 million based on exchange rates at January 31, 1997) in
cash, subject to adjustment based on the net book value of the acquired assets
as of the closing date. 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 the business communications systems sold
by Ericsson. Approximately 930 Ericsson employees currently based at the
Karlskrona Facilities are expected to remain employed at the facilities. In
addition, Ronny Nilsson, currently Vice President and General Manager, Supply
and Distribution of Ericsson will be appointed President of Flextronics
International Sweden AB and Senior Vice President, Europe of the Company at the
closing of the transaction. See "Risk Factors -- Risks of Ericsson Transaction."
The Company, certain of its subsidiaries and Ericsson also entered into a
multi-year purchase agreement (the "Purchase Agreement"), under which the
Company will manufacture 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 2.14 billion Swedish
kronor (approximately $314.7 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 increases
its worldwide capacity, obtains a strong base in Northern Europe and enhances
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 beginning to outsource
the manufacture of significant product lines.
The Company intends to use a combination of the proceeds of this offering
and debt financing to pay the purchase price for the Karlskrona Facilities. The
Company is currently engaged in discussions regarding long-term and short-term
credit arrangements, although no assurance can be given as to the availability
or terms of any such arrangements. See "Use of Proceeds" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Liquidity and Capital Resources." The Company anticipates closing the
acquisition of the Karlskrona Facilities by April 1, 1997. However, the
transition is subject to various closing conditions, including obtaining
regulatory approvals, and no assurance can be given as to when, or whether, it
will be completed. See "Risk Factors -- Risks of Ericsson Transaction."
The Company anticipates that it will record a charge to earnings of
approximately $3.0 million in the fourth quarter of fiscal 1997, relating to the
anticipated costs of separating the Karlskrona Facilities from Ericsson's
information systems and implementing a new management information system, as
well as transaction costs for the acquisition. The Company expects to reflect
the acquired assets on its balance sheet at amounts equal to those used in
calculating the purchase price. On a pro forma basis as of December 31, 1996
(and based on exchange rates as of such date), this would have increased the
Company's inventories from $45.3 million to $124.6 million, and would have
increased its net property and equipment from $71.0 million to $102.8 million.
Accounts receivable and cash would not have increased on a pro forma basis as of
December 31, 1996. In addition, the Company will not assume any liabilities of
Ericsson other than certain accrued compensation obligations, which were $3.3
million as of December 31, 1996 (based on exchange rates on such date). The
Company does not expect to account for any portion of the purchase price as an
intangible asset, such as goodwill. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
The foregoing discussion, and discussions elsewhere in this Prospectus
relating to the acquisition of the Karlskrona Facilities and the execution of
the Purchase Agreement (together, the "Ericsson Transaction") and the benefits
that the Company anticipates that it may derive from the Ericsson Transaction,
contain
5
<PAGE> 8
forward looking statements. The Company's ability to achieve the anticipated
benefits of the Ericsson Transaction is subject to a number of risks. The
Purchase Agreement contains certain cost reduction targets and price
limitations, and imposes on the Company certain manufacturing quality
requirements. The Company has no experience operating in Sweden, which has
relatively high manufacturing costs, and there can be no assurance that the
Company can achieve acceptable levels of profitability under the Purchase
Agreement or reduce costs and prices to Ericsson over time as contemplated by
the Purchase Agreement. Further, the Purchase Agreement contains certain
financial covenants that must be maintained by the Company, and 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 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 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 certain
transactions that could adversely affect its ability to continue to supply
products and services to Ericsson under the Purchase Agreement or its ability to
reduce costs and prices to Ericsson. See "Risk Factors -- Risks of Ericsson
Transaction."
THE COMPANY
Flextronics is incorporated in Singapore under the Companies Act, Chapter
50 of Singapore (the "Companies Act"). The Company's principal executive offices
are located at 514 Chai Chee Lane #04-13, Bedok Industrial Estate, Singapore
469029, and its telephone number is (65) 449-5255. The address of the Company's
principal U.S. office is 2241 Lundy Avenue, San Jose, California 95131, and its
telephone number is (408) 428-1300. "Flextronics" is a trademark of Flextronics.
This Prospectus also contains trademarks of other companies. Flextronics
prepares its consolidated financial statements in U.S. dollars.
6
<PAGE> 9
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information in this Prospectus before purchasing the Ordinary Shares
offered hereby. The discussion in this Prospectus contains certain
forward-looking statements, such as statements of the Company's plans,
objectives, expectations and intentions. The cautionary statements made in this
Prospectus 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 here. Factors that could cause or
contribute to such differences include those discussed below, as well as those
discussed elsewhere herein.
RISKS OF ERICSSON TRANSACTION
While the Company has entered into the Asset Transfer Agreement with
Ericsson to acquire the Karlskrona Facilities from Ericsson, it has not
consummated this transaction, and consummation is subject to certain conditions
precedent, including obtaining Swedish regulatory approvals, the receipt of
specified legal assurances, and the absence of certain adverse changes. Although
the Company anticipates closing this transaction by April 1, 1997, and the Asset
Transfer Agreement provides for a closing by no later than May 2, 1997, no
assurance can be given as to when, or whether, the Ericsson Transaction will be
completed. The Company intends to use the net proceeds from this offering to pay
a portion of the purchase price of the Karlskrona Facilities. If the Ericsson
Transaction is not consummated, the Company intends to use such proceeds for
working capital and general corporate purposes, including the planned expansion
of its operations in Doumen, China and San Jose, California. See "Use of
Proceeds." The Company also intends to incur a substantial amount of
indebtedness to pay a portion of the purchase price of the Karlskrona
Facilities, which will increase its interest expense in future periods. There
can be no assurance as to the availability or terms of such indebtedness.
The Ericsson Transaction represents a significant expansion of the
Company's operations, and entails a number of risks. In particular, the
Karlskrona Facilities have operated as captive manufacturing facilities for
Ericsson, and will now be used as an integrated part of the Company's ongoing
manufacturing operations. This will require optimizing production lines,
separating the Karlskrona Facilities' management information systems from those
of Ericsson and implementing new management information systems, implementing
the Company's operating systems, and assimilating and managing existing
personnel. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Overview" and "Business -- Employees." The difficulties
of this integration may be further complicated by the geographical distance of
the Karlskrona Facilities from the Company's current operations in Asia and the
United States. In addition, the Ericsson Transaction will 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
these operations, the Company would be materially adversely affected.
As a result of the Ericsson Transaction, the Company expects that sales to
Ericsson will represent a large portion of its net sales. Ericsson has not
previously been a substantial customer of the Company. There can be no assurance
that the Company will not encounter difficulties in meeting Ericsson's
expectations as to product quality, timeliness and cost reductions. 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 issues with Ericsson, could have a
material adverse effect on the Company and its results of operations. There can
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 may seek to use the Karlskrona
Facilities to manufacture products for third parties. 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. 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. The Company
7
<PAGE> 10
has no experience operating in Sweden, which has relatively high manufacturing
costs, and there can be no assurance that the Company can achieve acceptable
levels of profitability, or reduce costs and prices to Ericsson over time as
contemplated by the Purchase Agreement. In addition, no assurances can be given
as to the Company's ability to expand manufacturing capacity at the Karlskrona
Facilities. See "Acquisition of Karlskrona Facilities."
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 $448.3 million in fiscal 1996. In addition to its
recent acquisitions, the Company may from time to time pursue the acquisition of
other companies, assets or product lines that complement or expand its existing
business. There can be no assurance that the Company's historical growth will
continue or that the Company will successfully manage the integration of the
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. Continued growth will also require increased investments to enhance
management information systems capabilities and to add manufacturing capacity.
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's results
of operations. In addition, the Company's results of operations would be
adversely affected if its new facilities do not achieve growth sufficient to
offset increased expenditures associated with expansion.
Expansion through acquisition and internal growth has contributed to the
Company's incurring significant accounting charges and experiencing 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 closure of a
facility in Malaysia and a facility in China. In the third quarter of fiscal
1997, the Company reported charges associated with the closure of its
manufacturing facilities in Texas and the write-off of obsolete equipment at the
nCHIP semiconductor fabrication facility. 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.
ACQUISITIONS
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 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. No assurance can be
given that any past or future acquisition by the Company will not materially
adversely affect the Company or that any such acquisition will enhance the
Company's business.
8
<PAGE> 11
CUSTOMER CONCENTRATION; DEPENDENCE ON ELECTRONICS INDUSTRY
A small number of customers are currently responsible for a significant
portion of the Company's net sales. In fiscal 1996, the Company's five largest
customers accounted for approximately 52.0% of net sales, and in the nine months
ended December 31, 1996 its five largest customers accounted for approximately
49.4% of net sales. Approximately 14.1% of Flextronics' net sales for fiscal
1996, and 13.8% of its net sales for the nine months ended December 31, 1996,
were derived from sales to Lifescan (a Johnson & Johnson company). Flextronics
anticipates that a small number of its customers will continue to account for a
large portion of its net sales as it focuses on strengthening and broadening
relationships with leading OEMs. After consummation of the Ericsson Transaction,
the Company expects that sales to Ericsson will represent a significant portion
of its net sales. See "Risk Factors -- Risks of Ericsson Transaction."
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. 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's results of operations. 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's 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's results of operations.
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 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's results of operations. 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 revenues are adversely affected by the
observance of local holidays
9
<PAGE> 12
during the fourth fiscal quarter in Malaysia and China 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 closure of facilities
in Malaysia and China. In the third quarter of fiscal 1997, the Company reported
charges associated with the closure of its manufacturing facilities in Texas and
the write-off of obsolete equipment at the nCHIP semiconductor fabrication
facility.
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 revenue
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 "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 may be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
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 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 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.
The Company believes there are more than 30 contract manufacturers with annual
revenues above $100.0 million. 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
10
<PAGE> 13
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.
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 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 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 and cash flow 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 Results of Operations -- Provision for Income Taxes."
RISKS OF INTERNATIONAL OPERATIONS
The Company's executive offices are located in Singapore and the United
States and the Company has substantial manufacturing operations located in
Singapore, Malaysia, China, the United States and the United Kingdom. In
addition, the Company is acquiring substantial manufacturing operations in
Sweden and is developing a manufacturing campus in Mexico, countries in which
the Company has never manufactured products. The geographical distances between
Asia, the United States 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 currency,
duties, possible employee turnover, labor unrest, less 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. 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, 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
11
<PAGE> 14
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.
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
are denominated in other currencies such as Singapore dollars, Hong Kong
dollars, Malaysian ringgit, British pounds sterling and Chinese renminbis. After
consummation of the Ericsson Transaction, the Company expects that a significant
portion of its business also will be conducted in Swedish kroner. 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 and unless such
activities are successfully implemented, the Company will be subject to
significantly greater exchange rate fluctuation risk following the Ericsson
Transaction. There can be no assurance that the Company will implement any
hedging techniques or that if it does so, that such techniques will be
successful.
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, so
the Company typically bears 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 prices which could have a material
adverse effect on the Company.
DEPENDENCE ON KEY PERSONNEL AND SKILLED EMPLOYEES
The Company's success depends to a large extent upon the continued services
of key managers. The loss of such personnel could have a material adverse effect
on the Company. 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's results of operations. The Company's
ability to successfully integrate the Karlskrona Facilities also depends in part
on its ability to retain existing employees at these facilities.
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. The Company manufactures substrates for its MCMs on
its semiconductor fabrication line in California, and is expanding its PCB
fabrication operations in China. Proper handling, storage and disposal of the
metals and chemicals used in such 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's operations.
12
<PAGE> 15
INTELLECTUAL PROPERTY CLAIMS
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.
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 such claims could materially adversely affect the
Company's business.
INCREASED LEVERAGE
In connection with the acquisition of the Karlskrona Facilities, the
Company will incur approximately $100.0 million in additional indebtedness which
will result in an increase in the Company's ratio of long-term debt and capital
lease obligations to total capitalization at December 31, 1996 from
approximately 25.1% to approximately 50.2% on a pro forma basis. As a result of
this additional indebtedness, the Company's principal and interest obligations
will increase substantially. The degree to which the Company will be leveraged
could materially adversely affect the Company's ability to obtain additional
financing for working capital, acquisitions or other purposes and could make it
more vulnerable to industry downturns and competitive pressures. The Company's
ability to meet its debt service obligations will be dependent upon the
Company's future performance, which will be subject to financial, business and
other factors affecting the operations of the Company, many of which are beyond
the Company's control.
CERTAIN PROVISIONS RELATING TO CHANGES IN CONTROL
Certain provisions of the Companies Act and the Singapore Code on Takeovers
and Mergers could make it more difficult for a third party to acquire control of
the Company. Such provisions could limit the price that certain investors might
be willing to pay in the future for Ordinary Shares of the Company. Certain of
such provisions impose various procedural and other requirements which could
make it more difficult for shareholders to effect certain corporate actions. See
"Description of Capital Shares -- Takeovers."
VOLATILITY OF MARKET PRICE OF ORDINARY SHARES
The stock market in recent years has experienced significant price and
volume fluctuations that have affected the market prices of technology companies
and that have often been unrelated to or disproportionately impacted by the
operating performance of such companies. There can be no assurance that the
market for the Ordinary Shares will not be subject to similar fluctuations.
Factors such as fluctuations in the operating results of the Company,
announcements of technological innovations or events affecting other companies
in the electronics industry, currency fluctuations and general market conditions
may have a significant effect on the market prices of the Company's securities,
including the Ordinary Shares.
13
<PAGE> 16
ENFORCEMENT OF CIVIL LIABILITIES
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 U.S. subsidiaries), are located outside the United States. As a result, it
may not be possible for persons purchasing Ordinary Shares to effect service of
process within the United States upon such persons or the Company or to enforce
against them, 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 net proceeds to the Company from the sale of the Ordinary Shares
offered hereby are estimated to be approximately $43.3 million. Such net
proceeds, together with net proceeds to the Company of anticipated debt
financing, will be used to pay the purchase price of the Karlskrona Facilities.
To the extent that the net proceeds from the sale of the Ordinary Shares offered
hereby, together with the net proceeds from such anticipated debt financing,
exceed the amount of the purchase price of the Karlskrona Facilities, the
Company intends to use such excess proceeds for working capital and general
corporate purposes, including the planned expansion of its operations in Doumen,
China and San Jose, California. Pending such uses, the Company will invest the
net proceeds of this offering in investment-grade, short-term, interest-bearing
securities. While the Company has entered into an agreement with Ericsson to
acquire the Karlskrona Facilities, it has not consummated this transaction, and
the consummation of the Ericsson Transaction is subject to certain conditions
precedent. If the Ericsson Transaction is not consummated, the Company intends
to use such proceeds for working capital and general corporate purposes,
including the planned expansion of its operations in Doumen, China and San Jose,
California. See "Risk Factors -- Risks of Ericsson Transaction."
DIVIDENDS
Since inception, the Company has not declared or paid any cash dividends on
its Ordinary Shares, and the Company's current loan agreements prohibit the
payment of cash dividends without the lenders' prior consent. The Company
anticipates that all earnings in the foreseeable future will be retained to
finance the continuing development of its business.
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<PAGE> 17
PRICE RANGE OF ORDINARY SHARES
The Company's Ordinary Shares are traded on the Nasdaq National Market
under the symbol "FLEXF." The following table shows the high and low closing
sales prices of the Company's Ordinary Shares since the beginning of the
Company's 1995 fiscal year.
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
Fiscal 1995
First Quarter...................................................... $ 14 $8 3/4
Second Quarter..................................................... 15 1/2 9
Third Quarter...................................................... 16 1/4 12 3/4
Fourth Quarter..................................................... 18 13
Fiscal 1996
First Quarter...................................................... $21 7/8 $13 1/2
Second Quarter..................................................... 26 3/4 21 3/4
Third Quarter...................................................... 30 21
Fourth Quarter..................................................... 35 3/4 25 3/4
Fiscal 1997
First Quarter...................................................... $ 39 $ 25
Second Quarter..................................................... 28 1/4 17
Third Quarter...................................................... 37 1/4 21
Fourth Quarter (through February 11, 1997)......................... 29 7/8 23 5/8
</TABLE>
On February 11, 1997, the closing sales price of the Ordinary Shares was
$26.25 per share.
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<PAGE> 18
CAPITALIZATION
The following table sets forth the Company's capitalization as of December
31, 1996, as adjusted to give effect to the application of the estimated net
proceeds from the sale by the Company of the 1,750,000 Ordinary Shares offered
hereby at an assumed public offering price of $26.25 per share, and pro forma to
give further effect to the assumed incurrence of $100.0 million principal amount
of long-term indebtedness by the Company in connection with the acquisition of
Karlskrona Facilities.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------
AS ADJUSTED
ACTUAL AS ADJUSTED(1) PRO FORMA(1)(2)
-------- -------------- ---------------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, less current portion....... $ 18,985 $ 18,985 $ 118,985
Capital lease obligations, less current
portion.................................. 9,034 9,034 9,034
Shareholders' equity:
Ordinary Shares, S$0.01 par value;
100,000,000 shares authorized,
13,581,791 shares issued and
outstanding, 15,331,791 shares issued
and outstanding as adjusted........... 87 99 99
Additional paid-in capital............... 94,652 137,921 137,921
Accumulated deficit...................... (11,137) (11,137) (11,137)
-------- --------
Total shareholders' equity....... $ 83,602 $126,883 $ 126,883
======== ========
Total capitalization............. $111,621 $154,902 $ 254,902
======== ========
</TABLE>
- ---------------
(1) Adjusted to reflect the sale of the 1,750,000 Ordinary Shares offered hereby
(at an assumed public offering price of $26.25 per share and after deducting
the estimated underwriting discount and offering expenses payable by the
Company) and the receipt of the net proceeds therefrom. See "Use of
Proceeds."
(2) Gives pro forma effect to the incurrence of $100.0 million principal amount
of indebtedness by the Company, all of which is assumed to be long-term debt
(although the Company is evaluating its financing strategy and may also
utilize short-term debt), net proceeds of which are expected to be used,
together with the net proceeds from the sale of the Ordinary Shares offered
hereby to pay the purchase price for the Karlskrona Facilities, in each case
as if such transactions had been consummated on December 31, 1996.
16
<PAGE> 19
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company as of
and for each of nine months ended December 31, 1995 and 1996 and the fiscal
years ended March 31, 1992, 1993, 1994, 1995 and 1996. The selected financial
data set forth below as of March 31, 1995 and 1996 and for the fiscal years
ended March 31, 1994, 1995 and 1996 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 as of March 31, 1992, 1993 and 1994 and
for the fiscal years ended March 31, 1992 and 1993 have been derived from
audited financial statements not included in this Prospectus. The selected
financial data as of December 31, 1996 and for the nine months ended December
31, 1995 and 1996 is derived from the unaudited financial statements of the
Company for such periods. In the opinion of management, all adjustments,
consisting of normal recurring accruals, 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>
NINE MONTHS ENDED
YEAR ENDED MARCH 31, DECEMBER 31,
---------------------------------------------------- -------------------
1992 1993 1994 1995(1) 1996(2) 1995 1996(3)
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................................... $ 80,729 $100,759 $131,345 $237,386 $448,346 $322,645 $362,264
Cost of sales...................................... 73,361 91,794 117,392 214,865 406,457 293,461 325,827
------- -------- -------- -------- -------- -------- --------
Gross profit..................................... 7,368 8,965 13,953 22,521 41,889 29,184 36,437
Selling, general and administrative expenses....... 7,252 7,131 8,667 11,468 18,587 13,255 19,101
Research and development........................... 2,737 81 202 91 31,562 -- --
Goodwill and intangible amortization............... 399 388 419 755 1,061 783 863
Provision for plant closings....................... 202 -- 830 -- 2,454 -- 2,321
------- -------- -------- -------- -------- -------- --------
Operating income (loss).......................... (3,222) 1,365 3,835 10,207 (11,775) 15,146 14,152
Interest expense and other, net.................... 2,898 2,329 1,376 1,043 1,846 1,121 1,450
Merger expenses.................................... -- -- -- 816 -- -- --
Income (loss) from joint venture................... -- -- (70) (729) -- -- --
------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes................ (6,120) (964) 2,389 7,619 (13,621) 14,025 12,702
Provision for income taxes......................... 398 264 654 1,463 3,791 2,399 2,166
Extraordinary gain................................. -- -- 416 -- -- -- --
------- -------- -------- -------- -------- -------- --------
Net income (loss)................................ $ (6,518) $ (1,228) $ 2,151 $ 6,156 $(17,412) $ 11,626 $ 10,536
======= ======== ======== ======== ======== ======== ========
Net income (loss) per share........................ $ (0.89) $ (0.17) $ 0.28 $ 0.51 $ (1.39) $ 0.89 $ 0.73
======= ======== ======== ======== ======== ======== ========
Weighted average Ordinary Shares and equivalents
used in per share calculations................... 7,284 7,382 7,730 12,103 12,536 13,130 14,377
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
-------------------------------------------------- -------------
1992 1993 1994 1995 1996 1996
------- ------- -------- -------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).................................... $ 856 $(1,201) $ 30,669 $ 33,425 $ 27,676 $ 26,205
Total assets................................................. 41,734 52,430 103,129 116,117 214,588 217,934
Long-term debt and capital lease obligations, less current
portion.................................................... 7,514 17,243 4,755 6,890 28,360 28,419
Shareholders' equity (deficit)............................... (1,040) (2,256) 46,703 57,717 70,779 83,602
</TABLE>
- ---------------
(1) In January 1995, the Company acquired nCHIP in exchange for an aggregate of
2,450,000 Ordinary Shares in a transaction accounted for as a pooling of
interests. Accordingly, the financial data presented for each fiscal period
includes the historical results of nCHIP.
(2) In the fourth quarter of fiscal 1996, the Company wrote off $31.6 million of
in-process research and development associated with the acquisition of
Astron and also recorded charges totaling $2.5 million for costs associated
with the closing of one of the Company's Malaysian plants and its Shekou,
China operations. Without taking these write-offs and charges into account,
the Company's net income and earnings per share would have been $16.6
million and $1.25, respectively, in fiscal 1996.
(3) In the third quarter of fiscal 1997, the Company incurred plant closing
expense of $2.3 million in connection with the closing of its Texas facility
and the write-off of obsolete equipment at the nCHIP semiconductor
fabrication facility.
17
<PAGE> 20
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The matters discussed below and elsewhere herein contain forward-looking
statements regarding the future performance of the Company and future events.
These matters involve risks and uncertainties that could cause actual results to
differ materially from the statements contained herein. In addition to the
matters discussed below, see "Risk Factors" for information relating to such
risks and uncertainties.
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., which had been in the contract manufacturing
business since 1982. 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 13 of
Notes to Consolidated Financial Statements.
In March 1994, the Company acquired Relevant, a San Jose-based contract
manufacturer, for approximately $4.0 million in cash. In January 1995, the
Company acquired nCHIP in exchange for an aggregate of approximately 2,450,000
Ordinary Shares in a transaction accounted for as a pooling of interests.
Currently, the Company is engaged in negotiations to sell nCHIP's semiconductor
wafer fabrication facilities to a third party. See "Results of
Operations -- Provision for Plant Closings." In April 1995, the Company acquired
A&A, a contract manufacturer located in the United Kingdom, for a total
consideration of $2.9 million in cash and 66,908 Ordinary Shares.
In February 1996, the Company acquired Astron in exchange for total
consideration of $45.6 million consisting of (i) $13,440,605 in cash, (ii) $15.0
million in 8% promissory notes, ($10.0 million of which are payable in February
1997 and $5.0 million of which are payable in February 1998), (iii) 238,864
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 is also required to pay an
earnout of up to an additional $12.5 million in cash and Ordinary Shares on or
about March 31, 1997, based on the pre-tax profit of Astron for the year ended
December 31, 1996. In addition, the Company has agreed to pay a consulting and
non-compete fee of $15.0 million to Stephen J. L. Rees on June 30, 1998
conditioned upon his remaining employed as Chairman of Astron through that time.
This amount will be expensed when paid. In the fourth quarter of fiscal 1996,
the Company wrote off $31.6 million of in-process research and development
related to the acquisition of Astron.
In November 1996, the Company acquired Fine Line in exchange for 223,321
Ordinary Shares in a pooling of interests transaction. In December 1996, the
Company acquired 40% of FICO for $5.2 million. Of this, the Company paid $3.0
million in December 1996, and the remaining amount is due in April 1997. The
Company also obtained 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 period ending December 31, 1997.
In February 1997, the Company entered into the Asset Transfer Agreement
with Ericsson, under which the Company agreed to purchase the Karlskrona
Facilities for approximately 792 million Swedish kronor (approximately $109.2
million based on exchange rates at January 31, 1997), to be financed with the
net proceeds from this offering and anticipated debt financing. See "Use of
Proceeds" and "-- Liquidity and Capital Resources." In connection with this
transaction, the Company anticipates that it will record a charge to earnings of
approximately $3.0 million in the fourth fiscal quarter of fiscal 1997, relating
to the anticipated costs of separating the Karlskrona Facilities from Ericsson's
management information systems and implementing a new management information
system, as well as transaction costs for the acquisition. See "Acquisition of
Karlskrona Facilities" and "Risk Factors -- Risks of Ericsson Transaction."
18
<PAGE> 21
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>
NINE MONTHS
FISCAL YEAR ENDED ENDED
MARCH 31, DECEMBER 31,
------------------------- ---------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................................... 89.4 90.5 90.7 91.0 90.0
----- ----- ----- ----- -----
Gross profit..................................... 10.6 9.5 9.3 9.0 10.0
Selling, general and administrative expenses....... 6.6 4.9 4.2 4.1 5.3
Research and development........................... 0.2 -- 7.0 -- --
Goodwill and intangible assets amortization........ 0.3 0.3 0.2 0.2 0.2
Provision for plant closings....................... 0.6 -- 0.5 -- 0.6
----- ----- ----- ----- -----
Operating income (loss).......................... 2.9 4.3 (2.6) 4.7 3.9
Interest expense and other, net.................... 1.0 0.5 0.4 0.4 0.4
Merger expenses.................................... -- 0.3 -- -- --
Income (loss) from joint venture................... (0.1) (0.3) -- -- --
----- ----- ----- ----- -----
Income (loss) before income taxes................ 1.8 3.2 (3.0) 4.3 3.5
Provision for income taxes......................... 0.5 0.6 0.9 0.7 0.6
Extraordinary gain................................. 0.3 -- -- -- --
----- ----- ----- ----- -----
Net income (loss)................................ 1.6% 2.6% (3.9%) 3.6% 2.9%
===== ===== ===== ===== =====
</TABLE>
Net Sales
Net sales for the nine months ended December 31, 1996 increased 12.3% to
$362.3 million from $322.6 million for the nine months ended December 31, 1995.
The increase was primarily due to new customers in the computer and
communications industries, such as Microsoft, US Robotics and Advanced Fibre
Communications, and the inclusion of sales of Astron after it was acquired in
February 1996. This increase was partially offset by reduced sales to certain
existing customers, including Visioneer, Apple Computer, Logitech and Houston
Tracker Systems. The Company believes that the reduction in sales to these
customers was primarily due to reductions in these customers' sales to
end-users. See "Risk Factors -- Rapid Technological Change."
Net sales in fiscal 1996 increased 88.8% to $448.3 million from $237.4
million in fiscal 1995. This increase was primarily due to: increased 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 Braun/ThermoScan;
and inclusion of the sales of A&A and Astron after they were acquired 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.
Net sales in fiscal 1995 increased 80.8% to $237.4 million from $131.3
million in fiscal 1994. This increase was primarily the result of higher sales
to existing customers, including Lifescan (a Johnson & Johnson company), IBM and
Interbold, and sales to new customers in the consumer electronics industries
such as Phonex, International Components Corporation and Global Village
Communications.
Gross Profit
Gross profit 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 increased to
10.0% for the nine months ended December 31, 1996 as compared to 9.0% for the
nine months ended December 31, 1995. The
19
<PAGE> 22
increase was mainly due to higher sales in the first two quarters of the year
resulting in better labor and overhead absorption, and the inclusion of Astron's
printed circuit board business which has historically had a relatively higher
gross profit margin than the Company. This benefit was partially offset by
underutilization of the nCHIP semiconductor fabrication facility, and of the
Company's Texas facility, which is being closed, and related inventory
write-offs. See "-- Provision for Plant Closings." Gross margins may be
adversely effected in the short term as the Company commences production in new
facilities, including the Karlskrona Facilities, and may also be adversely
affected by the relatively high cost of manufacturing in Sweden.
Gross profit margin declined slightly to 9.3% in fiscal 1996 as compared to
9.5% in fiscal 1995, mainly due to the additional costs associated with new
manufacturing facilities in Texas and China that were opened in the fourth
quarter of fiscal 1995 and the expansion of the nCHIP semiconductor fabrication
facility. The decrease in gross profit margin was also attributable to a
reduction in certain selling prices in order to remain competitive.
Gross margin decreased to 9.5% in fiscal 1995 as compared to 10.6% in
fiscal 1994, principally as a result of sales to new customers, which typically
entail higher expenses and lower margin initially, as well as a decline in
nCHIP's results of operations.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months ended
December 31, 1996 increased to $19.1 million from $13.3 million in the nine
months ended December 31, 1995 and increased as a percentage of net sales from
4.1% to 5.3%. The increase in absolute dollars and as a percentage was
principally due to the inclusion of Astron's selling, general and administrative
expenses after its acquisition in February 1996; increased corporate salaries
and bonuses; increased sales and marketing expense; and travel and legal
expenses related to recent acquisitions.
Selling, general and administrative expenses in fiscal 1996 increased to
$18.6 million from $11.5 million in fiscal 1995, but decreased as a percentage
of net sales to 4.2% in fiscal 1996 from 4.9% in fiscal 1995. The increase in
absolute dollars was principally due to costs associated with the expanded
facilities in China and Texas, increased sales personnel and market research
activities in the United States and the inclusion of A&A's and Astron's selling,
general and administrative expenses after their acquisitions in April 1995 and
February 1996, respectively.
Selling, general and administrative expenses in fiscal 1995 increased to
$11.5 million from $8.7 million in fiscal 1994, but decreased as a percentage of
net sales to 4.9% in fiscal 1995 from 6.6% in fiscal 1994. The increase in
absolute dollars was principally due to costs associated with increases in
corporate administrative expenses and provision for doubtful accounts, the
inclusion of Relevant's selling, general and administrative expenses, and
provision for severance payments to certain nCHIP personnel.
Goodwill and Intangible Assets Amortization
Goodwill and intangible assets are amortized on a straight line basis.
Goodwill and intangible amortization for the nine months ended December 31, 1996
increased to $863,000 from $783,000 for the nine months ended December 31, 1995,
and increased to $1.1 million in fiscal 1996 from $755,000 in fiscal 1995,
primarily due to the Company's acquisitions of A&A and Astron. Goodwill and
intangible amortization increased to $755,000 in fiscal 1995 from $419,000 in
fiscal 1994 due to the acquisition of Relevant.
Provision for Plant Closings
As the Company has implemented its facilities consolidation strategy, it
has incurred expenses for plant closings in fiscal 1996 and the nine months
ended December 31, 1996. In the nine months ended December 31, 1996, the Company
incurred plant closing expense of $2.3 million in connection with the closing of
its Texas facility and the write-off of obsolete equipment at the nCHIP
semiconductor fabrication facility. 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.
In
20
<PAGE> 23
addition, during this period, the Company began negotiations to sell the nCHIP
semiconductor fabrication facility to a third party. In the fourth quarter of
fiscal 1997, the Company expects to incur expenses of approximately $2.0 million
in connection with its planned shift of manufacturing operations from Singapore
to lower cost manufacturing locations.
In the fourth quarter of fiscal 1996, the Company recorded charges
totalling $2.5 million for costs associated with the closing of one of the
Company's Malaysian plants and its Shekou, China operations. Production from the
Shekou facility was moved to the Company's plant in Xixiang, China. Without
taking this provision into account, the Company's net income and earnings per
share in fiscal 1996 would have been $16.6 million and $1.25, respectively. The
$2.5 million provision included a $1.0 million provision for inventory exposure
and $1.3 million associated with the write-off of certain obsolete equipment.
Research and Development
In the fourth quarter of fiscal 1996, the Company wrote off $31.6 million
of in-process research and development ("In-Process R&D") related to the
acquisition of Astron. The Company engaged Duff & Phelps Capital Markets Co.
("DPCM") to determine the fair market value of Astron's In-Process R&D, and DPCM
determined the valuation to be between $31.0 million and $37.0 million.
Interest Expense and Other, Net
Interest expense and other, net increased to $1.5 million for the nine
months ended December 31, 1996 from $1.1 million for the nine months ended
December 31, 1995, mainly due to indebtedness incurred in order to finance the
Astron acquisition, offset in part by a successful insurance claim. The Company
expects its interest expense to increase substantially as a result of the
indebtedness which it expects to incur to finance a portion of the purchase
price for the Karlskrona Facilities.
Interest expense and other, net increased to $1.8 million in fiscal 1996
from $1.0 million in fiscal 1995. The increase reflects interest incurred in
connection with additional indebtedness used to finance the cash portion of the
A&A and Astron acquisitions, to purchase machinery and equipment for capacity
expansion and to finance the Company's working capital requirements. The Company
recorded an unrealized foreign exchange gain of $872,000 in fiscal 1996 compared
to a foreign exchange loss of $303,000 in fiscal 1995 due to a weaker Malaysian
ringgit and Singapore dollar. See "Risk Factors -- Currency Fluctuations."
Interest expense and other, net decreased to $1.0 million in fiscal 1995
from $1.4 million in fiscal 1994. The decrease reflects lower interest expense
during this period as a result of the repayment of long term bank debt in March
1994, repayment of short-term advances in April 1994, and higher income earned
on cash balances for the first six months of fiscal 1995.
Income (Loss) from Joint Venture
Flextracker, the joint venture with Houston Tracker Systems ("HTS") in
which the Company previously owned a 49% interest, commenced operations in June
1993. 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. 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.
Merger Expenses
In January 1995, the Company acquired nCHIP and recorded a one-time
non-operating charge of approximately $816,000.
21
<PAGE> 24
Provision for Income Taxes
The Company is structured as a holding company, conducting its operations
through manufacturing and marketing subsidiaries in Singapore, Malaysia, Hong
Kong, Mauritius, China, the United Kingdom, the United States and the
Netherlands. 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 one
plant in Malaysia in fiscal 1996 was incurred by a Malaysian subsidiary that did
not have income against which this charge could be offset. The ordinary
corporate tax rates for calendar 1996 were 26%, 16.5% and 15% in Singapore, Hong
Kong and China, respectively, and 30% on manufacturing operations in Malaysia.
In addition, the tax rate is de minimis in Labuan, Malaysia and Mauritius where
the Company's offshore marketing and distribution subsidiaries are located.
The Company's consolidated effective tax rate was 17.1% for the nine months
ended December 31, 1996 and 19.2% in fiscal 1995. The provision for plant
closings of $2.5 million and the $31.6 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 write-off are excluded, the
Company's fiscal 1996 consolidated effective tax rate would have been 18.6%.
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. If the Singapore subsidiary
sells, leases or disposes of assets in respect of which investment allowances
have been granted before July 31, 1997, the amount of income previously exempted
from Singapore tax will then become taxable at the standard corporate tax rate
of 26.0%. 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. 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 minimus. 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 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 10.0%.
If tax incentives are not renewed upon expiration, if the tax rates
applicable to the Company are rescinded or changed, or if tax authorities
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
22
<PAGE> 25
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 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."
Extraordinary Gain
The extraordinary gain of $416,000 in fiscal 1994 represents the
forgiveness of accrued interest on the Company's outstanding subordinated debt,
the principal amount of which was converted into equity in December 1993.
Variability of Results
The Company has experienced, and expects to continue to experience,
significant periodic and quarterly fluctuations in results of operations due to
a variety of factors. 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 revenues are adversely affected by the
observance of local holidays during the fourth fiscal quarter in Malaysia and
China and the reduction in orders by certain customers in the fourth fiscal
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 revenue 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.
BACKLOG
The Company's backlog was $181.9 million at December 31, 1996 and $196.3
million at December 31, 1995. Backlog consists of contracts or purchase orders
with delivery dates scheduled within the next six months. Because of the timing
of orders, delivery intervals, customer and product mix and the possibility of
customer changes in delivery schedules, the Company's backlog as of any
particular date may not be indicative of actual sales for any succeeding period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations from cash generated from operations,
bank debt, lease financing of capital equipment and the proceeds of public
offerings of equity securities. At December 31, 1996, the Company had cash
balances totaling $13.6 million, outstanding bank borrowings of $5.7 million,
and an aggregate of $42.3 million available for borrowing under its credit
facilities.
Net cash provided by operating activities was $40.1 million for the nine
months ended December 31, 1996, comprised primarily of net income, depreciation,
provision for plant closings and decreases in accounts receivable. Net cash used
for operating activities was $10.9 million for the nine months ended December
31, 1995, primarily due to increases in inventory and decreases in accounts
payable.
Net cash used for operating activities was $710,000 and $3.4 million for
fiscal 1996 and 1995, respectively. Cash provided by operating activities for
fiscal 1996 was comprised primarily of net income (adjusted to exclude
In-Process R&D write-off and provision for plant closings) of $16.6 million,
depreciation, amortization and allowance for doubtful accounts and obsolescence.
Cash used for operating activities in fiscal
23
<PAGE> 26
1996 was primarily comprised of increases in accounts receivable and inventories
reflecting higher sales. Cash provided by operating activities for fiscal 1995
was comprised primarily of net income, depreciation, amortization, allowance for
doubtful debts and the loss from the Flextracker joint venture. Cash used for
operating activities for fiscal 1995 was comprised mainly of an increase in
accounts receivable and inventories.
Accounts receivable, net of allowance for doubtful accounts, decreased to
$67.2 million at December 31, 1996 from $78.1 million at March 31, 1996. The
decrease in accounts receivable was mainly due to improved collection of
accounts receivable during the nine months ended December 31, 1996. Inventories
decreased to $45.3 million at December 31, 1996 from $52.6 million at March 31,
1996. The Company's allowance for doubtful accounts increased to $4.3 million at
December 31, 1996 from $3.6 million at March 31, 1995. The Company's allowance
for inventory obsolescence increased to $5.9 million at December 31, 1996 from
$4.6 million at March 31, 1996. The increases in the allowances for both
doubtful accounts and inventory obsolescence were due to the increase in sales
in the nine month period. See "Risk Factors -- Customer Concentration;
Dependence on Electronics Industry."
Net cash used for investing activities during the nine months ended
December 31, 1996 was $20.1 million which consisted primarily of expenditures
for: the construction in progress at the new campus in Doumen, China; machinery
and equipment in the San Jose, California and Xixiang, China facilities; the
purchases of land in Guadalajara, Mexico and San Jose, California; and the
investment in FICO. Net cash used for investing activities during the nine
months ended December 31, 1995 was $21.6 million which consisted primarily of
purchases of machinery and equipment in the Company's manufacturing facilities
located in Texas, California and Xixiang, China.
Net cash used for investing activities during fiscal 1996 was $29.0 million
which consisted primarily of $15.8 million of expenditures for machinery and
equipment in the Company's manufacturing facilities located in Texas, California
and Xixiang, China as well as payment of $15.2 million for the cash portion of
the A&A and Astron acquisitions (net of cash acquired). Net cash used for
investing activities for fiscal 1995 was $10.2 million which consisted mainly of
purchases of property and equipment in three Asian plants and payment for the
acquisition of the net assets of Flextracker.
Net cash used for financing activities was $12.9 million for the nine
months ended December 31, 1996 and consisted primarily of repayment of bank
loans and capital lease obligations. Net cash provided by financing activities
was $36.1 million for the nine months ended December 31, 1995 and consisted
primarily of net proceeds from the issuance of share capital and borrowings from
banks. Bank borrowings decreased from $14.4 million at March 31, 1996 to $5.7
million at December 31, 1996 as the Company repaid bank loans using cash
provided by the operating activities.
Net cash provided by financing activities was $31.6 million in fiscal 1996,
consisting primarily of $22.3 million from the sale of 1,000,000 Ordinary Shares
and net bank borrowings of $12.3 million. Net cash used for financing activities
was $10.8 million for fiscal 1995, consisting primarily of repayment of bank
borrowings and notes payable, offset in part by proceeds from the sale of
Ordinary Shares and increased capital lease financing.
The Company presently anticipates that its capital expenditures in the
fourth quarter of fiscal 1997 will be approximately $5.0 million to $7.0 million
(excluding the purchase price for the Karlskrona Facilities) and anticipate that
its capital expenditures in fiscal 1998 will be approximately $20.0 million to
$35.0 million, primarily relating to the development of new and expanded
facilities in San Jose, California, Guadalajara, Mexico, and Doumen, China. In
addition, the Company will be required to expend cash in the fourth quarter of
fiscal 1997 and in fiscal 1998 pursuant to the terms of the Astron acquisition.
The Company will be required to make principal payments of $10.0 million and
$5.0 million in February 1997 and February 1998, respectively, pursuant to the
terms of notes issued by it in connection with the Astron acquisition, and will
be required to pay an earnout of up to an additional $12.5 million in cash and
Ordinary Shares on or about March 31, 1997, based on the pre-tax profit of
Astron for the year ended December 31, 1996. The Company is also required to
make a $15.0 million payment in cash and Ordinary Shares to Stephen J. L. Rees
on June 30, 1998, conditioned upon his remaining employed as Chairman of Astron
through that time. The Company believes that existing cash balances, together
with anticipated cash flow from operations and amounts
24
<PAGE> 27
available under its existing and anticipated credit facilities, will be
sufficient to fund its operations (other than the Ericsson Transaction) through
fiscal 1998.
To finance the Ericsson Transaction, the Company intends to use a
combination of the net proceeds of this offering and anticipated long-term and
short-term financing arrangements, and is engaged in discussions with lenders
regarding such financing arrangements. No assurance can be given as to the
availability or terms of any such financing arrangements. See "Risk
Factors -- Risks of Ericsson Transaction" and " -- Increased Leverage."
25
<PAGE> 28
BUSINESS
The Company is a leading provider of advanced contract manufacturing
services to OEMs in the communications, computer, consumer and medical
electronics 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 and COB technologies. The Company's strategy is to use its
global 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, Asia and Northern Europe. The
Company's customers include Advanced Fibre Communications, Ascend
Communications, Braun/ThermoScan, Cisco Systems, Diebold, 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 billion, and
is expected to grow to approximately $110 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 volume manufacturing
capabilities without making the capital investments required for
internal production.
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<PAGE> 29
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 leading 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 capabilities required by larger
OEMs. The Company is substantially increasing overall capacity by
developing manufacturing campuses in China and Mexico, expanding its
operations in San Jose, California and acquiring the Karlskrona
Facilities in Sweden. 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 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 greatly accelerate the
time to volume production. By working closely with its suppliers and
customers throughout the design and manufacturing process, the Company
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 plans to incorporate suppliers of
custom components in its facilities in China and Mexico, to further
reduce material and transportation costs. The Company
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<PAGE> 30
also intends to establish warehousing capabilities from which it can
ship products into the customer's 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 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 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. In fiscal 1996, the Company's five largest customers accounted
for approximately 52.0% of net sales. The loss of one or more major customers
could have a material adverse effect on the Company's results of operations. See
"Risk Factors -- Customer Concentration; Dependence on Electronics Industry."
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
Diebold............................................. Automatic teller machines
IBM................................................. Tape drive systems
Lifescan (a Johnson & Johnson company).............. Portable glucose monitoring system
Microcom............................................ Modems
Microsoft........................................... Computer peripheral devices
Polycom............................................. Teleconferencing systems
U.S. Robotics....................................... Pilot electronic organizers
</TABLE>
In addition, in fiscal 1997 the Company has entered into relationships with
a number of new significant customers, including Ascend Communications
(telecommunications products), Auspex (drive carriers), Cisco Systems (data
communications products), Harris DTS (network switches) and Philips Electronics
(video cameras).
The Company and Ericsson entered into a multi-year purchase agreement in
February 1997, and the Company believes that, as a result, sales by Ericsson
will account for a significant portion of its net sales in fiscal 1998. See
"Acquisition of Karlskrona Facilities" and "Risk Factors -- Risks of Ericsson
Transaction."
SALES AND MARKETING
The Company achieves worldwide sales coverage through a 24-person direct
sales force, which focuses on generating new accounts, and through 43 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 recently established sales
offices in Florida and Guadalajara, Mexico. The Company's Asian sales offices
are located in Singapore, Hong Kong and Malaysia. In Europe, the Company
maintains sales offices in England and the Netherlands, and intends to establish
additional European sales offices in France, Germany and Sweden. In addition to
its sales force, the Company's executive staff plays an integral role in the
Company's marketing efforts.
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<PAGE> 31
FACILITIES
The Company has manufacturing facilities located in Singapore, Malaysia,
China, the United Kingdom and the United States. In addition, the Company
provides engineering services at its facilities in 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 is set forth below:
<TABLE>
<CAPTION>
YEAR APPROXIMATE OWNED/
LOCATION COMMENCED SQUARE FEET LEASED(1) SERVICES
- ------------------------- --------- ------------- --------- ----------------------------------
<S> <C> <C> <C> <C>
Existing Manufacturing Facilities
Singapore(2)........... 1982 47,000 Leased Complex, high value-added PCB
assembly.
Johore, Malaysia....... 1991 80,000 Owned Full systems manufacturing; PCB
assembly.
Xixiang, China......... 1995 90,000 Leased High volume PCB assembly.
Doumen, China.......... 1995(3) 175,000(4) Owned Fabrication and assembly of high
density, miniaturized PCBs.
San Jose, CA........... 1994 65,000 Leased Full systems manufacturing; PCB
assembly.
San Jose, CA........... 1996 32,500 Leased Complex, high value-added PCB
assembly.
San Jose, CA........... 1989(5) 30,000 Leased Advanced packaging and MCM design
and fabrication.
Tonypandy, Wales....... 1983(6) 50,000 Owned Full systems manufacturing; medium
complexity PCB assembly.
Existing Engineering Facilities
Westford, MA........... 1987 9,112 Leased Design and prototype services.
Singapore.............. 1982 (7) -- Design and prototype services.
San Jose, CA........... 1989 (7) -- Design and prototype services.
Los Gatos, CA.......... 1986(8) 15,000 Leased Design and prototype services.
Facilities Under Development
San Jose, CA........... 1997(9) 73,000 Owned Complex, high value-added PCB
assembly.
San Jose, CA........... 1996(9) 71,000 Leased Engineering services and corporate
functions.
Doumen, China.......... 1996(9) 185,000 Owned Fabrication and assembly of high
density, miniaturized PCBs;
plastic injection molding.
Guadalajara, Mexico.... 1997(9) 101,000 Owned High volume PCB assembly.
</TABLE>
- ---------------
(1) 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 is being closed. The
Company leases this facility under a lease that expires in April 2000, and
the Company is seeking to sublet this facility.
(2) The Company intends to discontinue manufacturing operations at this
facility.
(3) Acquired by the Company in February 1996 in connection with the Astron
acquisition.
(4) Includes 75,000 square feet used for dormitories and other functions.
(5) Acquired by the Company in January 1995 in connection with the nCHIP
acquisition.
(6) Acquired by the Company in April 1995 in connection with the A&A
acquisition.
(7) Located within the 47,000 square foot manufacturing facility in Singapore
and the 30,000 square foot manufacturing facility in San Jose, California,
respectively.
(8) Acquired by the Company in March 1996 in connection with the Fine Line
acquisition.
(9) Refers to date of commencement of construction or of lease term.
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<PAGE> 32
The Company has recently begun to consolidate and expand its manufacturing
facilities, with the goal of concentrating its activities in a smaller number of
larger, strategically located sites. The Company is closing its Richardson,
Texas facility and reducing production levels at its Singapore facility, while
substantially increasing overall capacity by expanding operations in North
America, Asia and Europe. In North America, the Company has recently leased a
new 71,000 square foot facility, and is constructing a planned 73,000 square
foot facility, each adjacent to the Company's existing San Jose operations, and
it also is developing a planned 101,000 square foot manufacturing facility on a
32-acre campus site in Guadalajara, Mexico. In Asia, the Company is expanding
its Doumen facilities into a planned 360,000 square foot campus by developing an
additional 185,000 square feet. In Europe, the Company has entered into an
agreement to acquire the 330,000 square foot Karlskrona Facilities.
The campus facilities planned for Doumen, China and Guadalajara, Mexico are
designed to be integrated facilities that can produce many of the custom
components used by the Company, to manufacture products for customers, to
warehouse the products and to 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.
SERVICES
The Company provides a broad range of advanced engineering, manufacturing
and distribution services to OEM customers on a turnkey basis. These services
include 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 and COB technologies. While an increasing portion
of the Company's revenue is derived from the manufacture and assembly of final
products for OEM customers, the Company also designs and manufactures printed
circuit board assemblies, MCM products and miniature gold-finished PCBs that the
customer then incorporates into its 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 Flextronics' 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 leading 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 January 1995
acquisition of nCHIP provided advanced MCM design capabilities. Flextronics is
integrating the Fine Line and nCHIP capabilities with the Company's existing
design and prototype capabilities in its engineering services group. The Company
anticipates
30
<PAGE> 33
establishing additional design and prototype capabilities in the Karlskrona
Facilities. The Company also plans to expand its capabilities in Boston,
Massachusetts and San Jose, California.
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 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 under development
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 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.
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,
surface mount technology 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.
In addition, the Company has invested in emerging technologies that extend
its miniaturization capabilities. The Company's January 1995 acquisition of
nCHIP provided it with advanced capabilities to manufacture 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 believes that its MCMs
can offer cost, size and performance advantages compared to conventional and
interconnect technologies. The Company assembles completed MCMs in its San Jose,
California facilities and also utilizes an outside assembly company. Substrates
for the Company's MCMs are manufactured on the Company's semiconductor wafer
fabrication line in San Jose and by outside foundries. The Company is engaged in
negotiations to sell the semiconductor wafer fabrication line to a third party.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
The Company's February 1996 acquisition of Astron provided it with
significant capabilities to fabricate miniature gold-finished PCBs for
specialized applications such as cellular phones, pagers and optical
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
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<PAGE> 34
facility in Doumen, China. The Company is currently expanding this facility to
provide the capacity to fabricate other complex PCBs.
COB technology represents a configuration in which a bare, unpackaged
semiconductor is attached directly onto a PCB and then encapsulated with a
polymeric material. COB technology facilitates miniaturized, low-profile
assemblies, and can result in lower costs and reduced time to market.
FICO, in which the Company has a 40% investment, produces injection molded
plastics for electronics companies throughout Asia from its 120,000 square foot
facilities in Shenzhen, China. Flextronics intends to locate FICO operations
within the campus under development in Doumen, China.
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. Flextronics 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 have significantly
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.
The Company believes there are more than 30 contract manufacturers with annual
revenues above $100 million. 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.
Many contract manufacturers, including the Company, are substantially
expanding 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 can result in substantially
increased competition in the Company's markets.
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<PAGE> 35
EMPLOYEES
As of December 31, 1996, the Company employed 4,477 persons. In addition,
the Company expects to add approximately 930 employees in Sweden with the
acquisition of the Karlskrona Facilities. None of the Company's employees are
represented by a labor union except for (i) the Company's non-management
employees located in Singapore and (ii) the Company's hourly employees in the
United Kingdom. In addition, substantially all of the employees to be added with
the Karlskrona Facilities are represented by trade 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's results of operations. 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."
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<PAGE> 36
MANAGEMENT
The names, ages and positions of the Company's directors and officers are
as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- --------------------------------------------------
<S> <C> <C>
Michael E. Marks............ 46 Chairman of the Board and Chief Executive Officer
Tsui Sung Lam............... 47 President, Chief Operating Officer and Director
Dennis P. Stradford......... 50 Senior Vice President of Sales and Marketing
Goh Chan Peng............... 42 Chief Financial Officer
Teo Buck Song............... 39 Vice President, Purchasing
Michael McNamara............ 39 Vice President, President of United States
Operations
Hans D. Nilsson............. 40 Vice President, General Manager of European
Operations
Robert R. B. Dykes(1)(2).... 47 Director
Stephen J. L. Rees.......... 35 Director, Chairman of Astron Group
Michael J. Moritz(1)........ 42 Director
Richard L. Sharp(2)......... 49 Director
Bernard J. Lacroute......... 53 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
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. 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 and Chief
Operating Officer since January 1994, and a Director since 1991. 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 Flex
Holdings Pte. Limited, the Company's predecessor ("Flex Holdings"), 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.
Dennis P. Stradford. Mr. Stradford has served as Senior Vice President,
Sales and Marketing since December 1990. From October 1985 to February 1990, he
served as Senior Vice President, Sales and Marketing at Flex Holdings. Mr.
Stradford received a B.A. from San Jose State University and an M.A. and M.Div.
from St. Patrick's College.
Goh Chan Peng. Mr. Goh has served as the Company's Chief Financial Officer
since July 1992. From June 1990 to July 1992, he was the Company's Director of
Finance. From 1982 to June 1990, he served in various financial capacities at
Flex Holdings, including Director of Finance and Finance Manager -- Asia Pacific
Region. Mr. Goh received a Bachelor of Commerce from Singapore Nanyang
University and a Diploma in Personnel Management from Singapore Institute of
Management.
Teo Buck Song. Mr. Teo has served as Vice President, Purchasing since April
1994. From 1988 to April 1994, he was Director of Purchasing at Flex Holdings.
From 1982 to 1988, he served in various operational capacities at Flex Holdings,
including Purchasing Manager and Production Material Control Manager. Mr. Teo
received a Production Engineering Diploma from Singapore Polytechnic.
Michael McNamara. Mr. McNamara has served as Vice President and President
of United States Operations since April 1994. From May 1993 to March 1994, he
was President and Chief Executive Officer of Relevant, 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
April 1987 to May 1992, he was a Principal of Pittiglo, Rabin, Todd & McGrath,
an operations consulting firm.
34
<PAGE> 37
Mr. McNamara received a B.S. from the University of Cincinnati and an M.B.A.
from Santa Clara University.
Hans Nilsson. Mr. Nilsson has served as the Company's Vice President and
General Manager of European Operations since April 1994. From April 1991 to
April 1994, he was Senior Vice President at Metcal, Inc., a precision heating
instrument company. Mr. Nilsson received an M.S. in electrical engineering from
Chalmers University of Technology, Sweden and an M.B.A. from Stanford
University.
Robert R. B. Dykes. Mr. Dykes has served as a Director of the Company since
January 1994 and has been appointed to serve as its Senior Vice President of
Finance and Administration effective February 17, 1997. Mr. Dykes has been
Executive Vice President, Worldwide Operations and Chief Financial Officer of
Symantec Corporation, an application and system software products company, since
1988.
Stephen J. L. Rees. Mr. Rees has served as a Director of the Company since
April 1996 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 Visigenic
Software, Inc., Yahoo! Inc. and several privately-held companies.
Richard L. Sharp. Mr. Sharp has served as a Director of the Company since
July 1993. He has been the Chairman, President, Chief Executive Officer and a
director of Circuit City Stores, Inc., a consumer electronics and appliances
retailer, since June 1986. Mr. Sharp also serves as a director of S&K Famous
Brands, Inc. and the James River Corporation.
Bernard J. Lacroute. Mr. Lacroute has served as a Director of the Company
since July 1993. Mr. Lacroute has been a partner of Kleiner Perkins Caufield &
Byers, a Northern California venture capital firm, since 1989. Mr. Lacroute also
serves as a director of Radius Inc. and several privately-held companies.
35
<PAGE> 38
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Ordinary Shares as of February
1, 1997, and as adjusted to reflect the sale of shares offered by the Company
pursuant to this Prospectus, by (i) each of the Company's directors, the
Company's Chief Executive Officer and each of the Company's four other most
highly compensated executive officers in fiscal 1996, (ii) all directors and
executive officers as a group, and (iii) each person who is known by the Company
to own beneficially more than 5% of the Company's Ordinary Shares. Unless
otherwise indicated below, the persons and entities named in the table have sole
voting and sole investment power with respect to all the shares beneficially
owned, subject to community property laws where applicable.
<TABLE>
<CAPTION>
PERCENT
NUMBER OF SHARES OWNED PRIOR PERCENT
BENEFICIALLY TO OWNED AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED(1) OFFERING(2) OFFERING(3)
- --------------------------------------------------- -------------------- ------------- -------------
<S> <C> <C> <C>
JF Asia Select Limited(4).......................... 891,511 6.5% 5.8%
c/o Standard Chartered Bank
8th Floor, Edinburgh Tower
The Landmark Central, Hong Kong
Sequoia Capital(5)................................. 791,062 5.8 5.1
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, California 94025
The Capital Group Companies(6)..................... 781,500 5.7 5.1
333 South Hope Street
Los Angeles, California 90071
Richard L. Sharp(7)................................ 746,644 5.5 4.8
c/o Circuit City Stores, Inc.
9950 Mayland Drive
Richmond, Virginia 23233
Michael E. Marks(8)................................ 330,071 2.4 2.1
Tsui Sung Lam(9)................................... 66,961 * *
Dennis P. Stradford(10)............................ 45,064 * *
Goh Chan Peng(11).................................. 35,683 * *
Michael McNamara(12)............................... 78,454 * *
Robert R. B. Dykes(13)............................. 36,450 * *
Bernard J. Lacroute(14)............................ 46,977 * *
Michael Moritz(5).................................. 791,062 5.8 5.1
Stephen J. L. Rees(15)............................. 45,547 * *
All directors and executive officers as a group (10
persons)(16)..................................... 2,223,038 15.8% 14.1%
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission that deem shares to be beneficially
owned by any person who has voting or investment power with respect to such
shares. Ordinary Shares subject to options that are currently exercisable
or exercisable within 60 days of February 1, 1997 are deemed to be
outstanding and to be beneficially owned by the person holding such options
for the purpose of computing the percentage ownership of such person but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Percentage ownership is based upon 13,624,396 outstanding Ordinary Shares
as of February 1, 1997.
(3) Assumes that the Underwriters' over-allotment option to purchase up to
262,500 shares from the Company is not exercised.
(4) Jardine Fleming Investment Management Limited ("JFIM"), a corporation with
a board of directors comprised of 26 individuals, manages JF Asia Select
Limited. As of February 12, 1997, JF Asia Select had sold 425,000 of the
shares shown as beneficially owned by it. JFIM has advised the Company that
36
<PAGE> 39
JF Asia Select Limited expects to sell the remaining shares beneficially
owned by it in open market transactions.
(5) Includes 709,520 shares held by Sequoia Capital Growth Fund, a limited
partnership, and 45,291 shares held by Sequoia Technology Partners III, a
limited partnership. Sequoia Partners (CF) is the general partner of
Sequoia Capital Growth Fund and has sole voting and investment power over
such shares. The general partners of Sequoia Partners (CF) are Donald T.
Valentine, Pierre R. Lamond, Thomas F. Stephenson, Michael J. Moritz and
Gordon Russell. The general partners of Sequoia Technology Partners III are
Donald T. Valentine, Pierre R. Lamond, Thomas F. Stephenson and Gordon
Russell. Also includes 26,250 shares subject to options exercisable within
60 days of February 1, 1997 held by Mr. Moritz.
(6) Includes 781,500 shares beneficially owned by Capital Research and
Management Company.
(7) Includes 225,000 shares beneficially owned by Bethany Limited Partnership.
Mr. Sharp, the general partner of Bethany Limited Partnership, may be
deemed to share voting and investment power with respect to such shares.
Mr. Sharp disclaims beneficial ownership of all such shares except to the
extent of his proportionate interest therein. Also includes 36,250 shares
subject to options exercisable within 60 days of February 1, 1997 held by
Mr. Sharp.
(8) Includes 133,584 shares subject to options exercisable within 60 days of
February 1, 1997 held by Mr. Marks.
(9) Includes 62,667 shares subject to options exercisable within 60 days of
February 1, 1997 held by Mr. Tsui.
(10) Includes 1,773 shares held in an IRA rollover account. Also includes 6,291
shares subject to options exercisable within 60 days of February 1, 1997
held by Mr. Stradford.
(11) Includes 35,542 shares subject to options exercisable within 60 days of
February 1, 1997 held by Mr. Goh.
(12) Includes 31,042 shares subject to options exercisable within 60 days of
February 1, 1997 held by Mr. McNamara.
(13) Includes 36,250 shares subject to options exercisable within 60 days of
February 1, 1997 held by Mr. Dykes.
(14) Represents 36,250 shares held by the Bernard and Ronni Lacroute Trust and
36,250 shares subject to options exercisable within 60 days of February 1,
1997 held by Mr. Lacroute.
(15) Includes 3,754 shares held by Mrs. Janine Margaret Rees. Also includes
12,500 shares subject to options exercisable within 60 days of February 1,
1997.
(16) Includes 417,606 shares subject to options exercisable within 60 days of
February 1, 1997.
37
<PAGE> 40
DESCRIPTION OF CAPITAL SHARES
The following statements are brief summaries of the capital structure of
the Company and of the more important rights and privileges of shareholders
conferred by the laws of Singapore and the Company's Articles of Association
(the "Articles"). These statements summarize the material provisions of the
Articles but are qualified by reference to the Articles, which have been
incorporated by reference as an exhibit to the Registration Statement of which
this Prospectus forms a part. The Articles are available at the Company's San
Jose, California office and at the registered office of the Company in
Singapore.
ORDINARY SHARES
The authorized capital of the Company consists of 100,000,000 Ordinary
Shares, par value S$0.01. There is a provision in the Articles to enable the
Company in certain circumstances to issue shares with preferential, deferred or
other special rights or restrictions as the directors may determine. The
directors may issue shares at a premium and a sum equal to the aggregate amount
or value of the premium will, subject to certain exceptions, be transferred to a
share premium account.
All shares presently issued are fully paid and existing shareholders are
not subject to any calls on such shares. All shares are in registered form. The
Company can neither purchase its own shares nor, except in the circumstances
permitted by the Companies Act, grant any financial assistance for the
acquisition or proposed acquisition of its own shares.
NEW SHARES
New shares may only be issued with the prior approval of the Company in a
general meeting. General approval may be sought from the Company in a general
meeting for the issue of shares. Such approval, if granted, will lapse at the
next Annual General Meeting or the expiration of the period within which the
next Annual General Meeting is required to be held, whichever is the earlier.
The shareholders have provided general authority to issue any remaining unissued
shares, up to 100,000,000 Ordinary Shares, prior to the next Annual General
Meeting. Unless otherwise determined by the Company in a general meeting, any
new shares shall, before they are issued, be offered to existing shareholders in
proportion, as nearly as may be, to the number of shares then held by them
respectively. Subject to this and the provisions of the Companies Act, all new
shares are under the control of the directors who may allot and issue the same
with such rights and restrictions as they may think fit.
SHAREHOLDERS
Only persons who are registered in the books of the Company are recognized
as shareholders and absolute owners of the shares. On February 1, 1997, there
were approximately 526 holders of Ordinary Shares. The Company may, on giving
not less than 14 days' notice, close the register of members for any time or
times but the register may not be closed for more than 30 days in any calendar
year. Such closure is normally made for the purpose of determining shareholders'
entitlement to receive dividends and other distributions and would, in the usual
case, not exceed 10 days.
TRANSFER OF SHARES
Subject to applicable securities laws, shares are freely transferable but
the directors may decline to register any transfer of shares on which the
Company has a lien, and in the case of shares not fully paid up the directors
may refuse, at their discretion, to register or transfer shares to a transferee
of whom they do not approve. Shares may be transferred by a duly signed
instrument of transfer in a form approved by the directors. The directors may
decline to register any transfer unless, among other things, it has been duly
stamped and is presented for registration together with the share certificate
and such other evidence of title as they may require. The Company will replace
lost or destroyed certificates for shares upon notice to the Company and upon,
among other things, the applicant furnishing such evidence and indemnity as the
directors may require.
38
<PAGE> 41
SHAREHOLDERS' MEETINGS
The Company is required to hold an Annual General Meeting in each year. The
directors may convene an Extraordinary General Meeting whenever they think fit
and they must do so upon the request in writing of shareholders representing not
less than one-tenth of the total voting rights of all shareholders. In addition,
two or more shareholders holding not less than one-tenth of the issued share
capital of the Company may call a meeting of the Company. Unless otherwise
required by law or by the Articles, voting at general meetings is by ordinary
resolution (requiring an affirmative vote of a simple majority of the votes cast
at a meeting of which at least 14 days' written notice is given). An ordinary
resolution suffices, for example, in respect of appointments of directors. A
special resolution (requiring an affirmative vote of at least 75% of the votes
cast at the meeting of which at least 21 days' written notice is given) is
necessary for certain matters under Singapore law, such as an alteration of the
Articles.
VOTING RIGHTS
Voting at any meeting of shareholders is by a show of hands unless a poll
is duly demanded. If voting is by a show of hands, every shareholder who is
present in person or by proxy at the meeting has one vote. On a poll every
shareholder who is present in person or by proxy has one vote for every share
held by him. A poll may be demanded by the chairman of the meeting or by not
less than three members present in person or by proxy and entitled to vote or by
shareholders present in person or by proxy and representing in the aggregate not
less than one-tenth of the total voting rights of all shareholders having the
right to attend and vote at the meeting.
DIVIDENDS
Since inception, the Company has not declared or paid any cash dividends on
its Ordinary Shares, and the Company's current loan agreements prohibit the
payment of cash dividends without the lenders' prior consent. The Company
anticipates that all earnings in the foreseeable future will be retained to
finance the continuing development of its business.
BONUS AND RIGHTS ISSUE
The Company in a general meeting may, upon the recommendation of the
directors, capitalize any reserves or profits (including profits or monies
carried and standing to any reserve or to the share premium account) and
distribute the same as bonus shares credited as paid-up to the shareholders in
proportion to their shareholdings. The directors may also issue to shareholders
rights to take up additional shares, in proportion to their shareholdings. Such
rights are subject to any conditions attached to such issue and the regulations
of the stock exchange on which the shares are listed.
TAKEOVERS
The Singapore Code on Takeovers and Mergers regulates the acquisition of
shares of public companies. Any person acquiring an interest (either on his own
or together with parties acting in concert with him) in 25% or more of the
voting shares in the Company is obliged to extend a takeover offer for the
remaining shares, in accordance with the provisions of such code. "Parties
acting in concert" include related and associated companies, directors
(including their relatives), pension funds, discretionary funds and financial
advisers (in respect of shares held by them and funds managed by them on a
discretionary basis). An offer for consideration other than cash must be
accompanied by a cash alternative at not less than the highest price paid by the
offeror or parties acting in concert with him within the preceding 12 months. A
mandatory takeover offer is also required to be made if a person holding between
25% and 50% of the voting shares acquires additional shares representing more
than 3% of the voting shares in any 12 month period.
LIQUIDATION OR OTHER RETURN OF CAPITAL
On a winding-up or other return of capital, subject to any special rights
attaching to any other class of shares, holders of Ordinary Shares will be
entitled to participate in any surplus assets in proportion to their
shareholdings.
39
<PAGE> 42
INDEMNITY
As permitted by the laws of Singapore, the Articles provide that, subject
to the Companies Act, the Company's directors and officers will be indemnified
by the Company against any liability incurred by them in defending any
proceedings, whether civil or criminal, which relate to anything done or omitted
to have been done as an officer, director or employee of the Company and in
which judgment is given in their favor or in which they are acquitted or in
connection with any application under any statute for relief from liability in
respect thereof in which relief is granted by the court. Directors and officers
may not be indemnified by the Company against any 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 the Company.
LIMITATIONS ON RIGHTS TO HOLD OR VOTE ORDINARY SHARES
Except as discussed in "Takeovers," there are no limitations imposed by the
laws of Singapore or by the Articles on the right of nonresident shareholders to
hold or vote Ordinary Shares.
TRANSFER AGENT
The Transfer Agent is The First National Bank of Boston, 150 Royall Street,
M/S 45-01-07, Canton, Massachusetts 02021.
40
<PAGE> 43
TAXATION
This summary of Singapore and U.S. tax considerations is based on current
law and is provided for general information. The discussion does not purport to
deal with all aspects of taxation that may be relevant to particular
shareholders in light of their investment or tax circumstances, or to certain
types of shareholders (including insurance companies, tax-exempt organizations,
regulated investment companies, financial institutions or broker-dealers, and
shareholders that are not U.S. Shareholders (as defined below)) subject to
special treatment under the U.S. federal income tax laws. Such shareholders
should consult their own tax advisors regarding the tax consequences of any
investment in the Ordinary Shares.
INCOME TAXATION UNDER SINGAPORE LAW
Under current provisions of the Income Tax Act, Chapter 134 of Singapore,
corporate profits are taxed at a rate equal to 26.0%. Under Singapore's taxation
system, the tax paid by a company is deemed paid by its shareholders. Thus, the
shareholders receive dividends net of the tax paid by the Company. Dividends
received by either a resident or a nonresident of Singapore are not subject to
withholding tax. Shareholders are taxed on the gross amount of dividends (i.e.,
the cash amount of the dividend plus the amount of corporate tax paid by the
Company). The tax paid by the Company will be available to shareholders as a tax
credit to offset the Singapore income tax liability on their overall income
(including the gross amount of dividends). If the shareholder's marginal tax
rate is equal to the corporate tax rate, there is no further Singapore tax to
pay on the dividends. In the case of a resident shareholder, if the
shareholder's marginal tax rate is lower than the corporate tax paid, the
shareholder is entitled to claim a tax refund for the difference from the
Singapore Inland Revenue Department; conversely, if the resident shareholder's
marginal tax rate is higher than the corporate tax rate, the shareholder must
pay the difference to the Singapore Inland Revenue Department. In the case of a
nonresident shareholder, the shareholder is taxed on dividends at the corporate
tax rate. Thus, the nonresident shareholder pays no further Singapore income tax
on the net dividends received. Further, the nonresident shareholder will not
receive any tax refund from the Singapore Inland Revenue Department. No tax
treaty currently exists between the Republic of Singapore and the U.S.
Under current Singapore tax law there is no tax on capital gains, and,
thus, any profits from the disposal of shares are not taxable in Singapore
unless the vendor is regarded as carrying on a trade in shares in Singapore (in
which case, the disposal profits would be taxable as trade profits rather than
capital gains).
There is no stamp duty payable in respect of the holding and disposition of
shares. No duty is payable on the acquisition of new shares. Where existing
shares are acquired in Singapore, stamp duty is payable on the instrument of
transfer of the shares at the rate of S$2 for every S$1,000 of the market value
of the shares. The stamp duty is borne by the purchaser unless there is an
agreement to the contrary. Where the instrument of transfer is executed outside
of Singapore, stamp duty must be paid if the instrument of transfer is received
in Singapore.
INCOME TAXATION UNDER UNITED STATES LAW
Shareholders that are (i) corporations or partnerships organized under the
laws of the United States, or any political subdivision thereof, (ii) estates or
trusts, the income of which, from sources without the U.S., is includable in
gross income for federal income tax purposes regardless of its connection with
the conduct of a trade or business within the United States, (iii) U.S. citizens
or (iv) U.S. resident aliens (as defined in Section 7701(b) of the Internal
Revenue Code of 1986, as amended) ("U.S. Shareholders") will be required to
report as income for U.S. income tax purposes the amount of any dividend
received from the Company to the extent paid out of the current or accumulated
earnings and profits of the Company, as determined under current U.S. income tax
principles. Such dividend income will generally be subject to the separate
limitation for "passive income" for purposes of the foreign tax credit
limitation. Shareholders that are corporations will not be entitled to the
dividends-received deduction with respect to dividends from the Company. If a
U.S. Shareholder receives a dividend payment in any currency other than U.S.
dollars, the amount of the dividend payment for federal income tax purposes will
be the U.S. dollar value of the dividend payment (determined at the spot rate on
the date such dividend is included in income) regardless of whether the payment
is in fact converted into U.S. dollars. In such a case, U.S. Shareholders may
recognize ordinary income or loss as a result of currency fluctuations during
the period between the date of a dividend payment and the date such
41
<PAGE> 44
dividend payment is converted into U.S. dollars. Non-corporate U.S. Shareholders
and corporate U.S. shareholders holding less than 10% of the voting stock of the
Company will not be entitled to an indirect foreign tax credit for the amount of
Singapore corporate income tax paid by the Company; a domestic corporation which
owns 10% or more of the voting stock of the Company may be entitled to an
indirect foreign tax credit for such taxes. Such dividend income, however, will
generally be subject to the separate limitation for "non-controlled Section 902
income" for purposes of the foreign tax credit limitation. Any domestic
corporation which owns 10% or more of the voting stock of the Company should
consult its tax advisor with respect to the U.S. taxation of its interest in the
Company. U.S. Shareholders will, upon the sale or exchange of a share, recognize
gain or loss for U.S. income tax purposes in an amount equal to the difference
between the amount realized and the U.S. Shareholder's tax basis in such a
share. If paid in currency other than U.S. dollars, the U.S. dollar amount
realized (as determined on the trade date) is determined by translating the
foreign currency into U.S. dollars at the spot rate in effect on the settlement
date of the sale in the case of a U.S. Shareholder that is a cash basis
taxpayer. An accrual basis taxpayer may elect to use the spot rate in effect on
the settlement date of the sale by filing a statement with the U.S.
Shareholder's first return in which the election is effective clearly indicating
that the election has been made. Such an election must be applied consistently
from year to year and cannot be changed without the consent of the Internal
Revenue Service. Such gain or loss will be capital gain or loss if the share was
a capital asset in the hands of the U.S. Shareholder and will be long-term
capital gain or loss if the share has been held for more than one year. If a
U.S. Shareholder receives any currency other than U.S. dollars on the sale of a
share, such U.S. Shareholder may recognize ordinary income or loss as a result
of currency fluctuations between the date of such sale and the date such sale
proceeds are converted into U.S. dollars.
If over 50% of the Company's stock (by vote or value) were owned by U.S.
Shareholders who individually held 10% or more of the Company's voting stock,
such U.S. Shareholders potentially would be required to include in income a
portion or all of their pro rata share of the Company's and its non-U.S.
subsidiaries' earnings and profits. If 50% or more of the Company's assets
during a taxable year produced or were held for the production of passive
income, as defined in section 1296(b) of the Code (e.g., certain forms of
dividends, interest and royalties), or 75% or more of the Company's gross income
for a taxable year was passive income, adverse U.S. tax consequences could
result to U.S. shareholders of the Company.
Shareholders that are not U.S. Shareholders ("non-U.S. shareholders") will
not be required to report for U.S. federal income tax purposes the amount of any
dividend received from the Company. Non-U.S. shareholders, upon the sale or
exchange of a share, will not be required to recognize gain or loss for U.S.
federal income tax purposes.
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 shares of the Company are considered to be situated
in Singapore. Thus, an individual shareholder who is not domiciled in Singapore
at the time of his or her death will be subject to Singapore estate tax on the
value of any such shares held by the individual upon the individual's death.
Such a shareholder will be required to pay Singapore estate tax to the extent
that the value of the shares (or any other assets subject to Singapore estate
tax) exceeds S$600,000. Any such excess will be taxed at a rate equal to 5% on
the first S$12,000,000 of the individual's Singapore chargeable assets and
thereafter at a rate equal to 10%. An individual shareholder who is a U.S.
citizen or resident (for U.S. estate tax purposes) also will have the value of
the shares included in the individual's gross estate for U.S. estate tax
purposes. An individual shareholder generally will be entitled to a tax credit
against the shareholder's U.S. estate tax to the extent the individual
shareholder actually pays Singapore estate tax on the value of the shares;
however, such tax credit is generally limited to the percentage of the U.S.
estate tax attributable to the inclusion of the value of the shares included in
the shareholder's gross estate for U.S. estate tax purposes, adjusted further by
a pro rata apportionment of available exemptions. Individuals who are domiciled
in Singapore should consult their own tax advisors regarding the Singapore
estate tax consequences of their investment.
42
<PAGE> 45
UNDERWRITING
The Underwriters named below (the "U.S. Underwriters") have severally
agreed, subject to the terms and conditions in the underwriting agreement (the
"U.S. Underwriting Agreement") by and among the Company and the U.S.
Underwriters, to purchase from the Company the number of Ordinary Shares
indicated below opposite their respective names, at the public offering price
less the underwriting discount set forth on the cover page of this Prospectus.
The U.S. Underwriting Agreement provides that the obligations of the U.S.
Underwriters are subject to certain conditions precedent and that the U.S.
Underwriters are committed to purchase all of the Ordinary Shares offered hereby
(other than those covered by the U.S. Underwriters' over-allotment option
described below) if they purchase any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Montgomery Securities.....................................................
Cowen & Company...........................................................
Salomon Brothers Inc......................................................
UBS Securities............................................................
---------
Total........................................................... 1,312,500
=========
</TABLE>
The Company also has entered into an underwriting agreement (the
"International Underwriting Agreement") with certain underwriters outside the
United States and Canada (the "International Managers" and, together with the
U.S. Underwriters, the "Underwriters"). Subject to the terms and conditions set
forth in the International Underwriting Agreement, and concurrently with the
sale of 1,312,500 Ordinary Shares to the U.S. Underwriters, the Company has
agreed to sell to the International Managers, and the International Managers
severally have agreed to purchase, an aggregate of 437,500 Ordinary Shares. The
offering price per share and the total underwriting discount per share are
identical under the U.S. Underwriting Agreement and the International
Underwriting Agreement.
In the U.S. Underwriting Agreement and the International Underwriting
Agreement, the U.S. Underwriters and the International Managers, respectively,
have agreed, subject to the terms and conditions set forth therein, to purchase
all of the Ordinary Shares being sold pursuant to each such Agreement if any of
the Ordinary Shares being sold pursuant to each such Agreement are purchased.
Under certain circumstances, the commitments of non-defaulting U.S. Underwriters
or International Managers may be increased. The purchases of Ordinary Shares by
the U.S. Underwriters and the International Managers are conditioned upon one
another.
The U.S. Underwriters have advised the Company that they propose initially
to offer the Ordinary Shares to the public on the terms set forth on the cover
page of this Prospectus. The U.S. Underwriters may allow selected dealers a
concession of not more than $ per share; and the U.S. Underwriters may
allow, and such dealers may reallow, a concession of not more than $
per share to certain other dealers. After the public offering, the offering
price and other selling terms may be changed by the U.S. Underwriters. The
Ordinary Shares are offered subject to receipt and acceptance by the U.S.
Underwriters, and to certain other conditions, including the right to reject
orders in whole or in part.
The Company has granted to the U.S. Underwriters an over-allotment option,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to 196,875 additional Ordinary Shares at the same price per share as
the initial shares to be purchased by the U.S. Underwriters. The U.S.
Underwriters may exercise such option only to cover over-allotments made in the
sale of the Ordinary Shares that the U.S Underwriters have agreed to purchase.
To the extent the U.S. Underwriters exercise such option, each U.S. Underwriter
will be committed, subject to certain conditions, to purchase such additional
shares in approximately the same proportion as set forth in the above table. The
Company has also granted an option to the International Managers, exercisable
during the 30-day period after the date of this Prospectus, to purchase up to an
aggregate of 65,625 additional Ordinary Shares to cover over-allotments, if any,
on terms similar to those granted to the U.S. Underwriters.
The U.S. Underwriters and the International Managers have entered into an
Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the
43
<PAGE> 46
Intersyndicate Agreement, sales may be made between the U.S. Underwriters and
the International Managers of such number of Ordinary Shares as may be mutually
agreed. The prices of any Ordinary Shares so sold shall be the public offering
price, less an amount not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and
any dealer to whom they sell Ordinary Shares will not offer to sell or sell
Ordinary Shares to persons who are non-United States or Canadian persons or to
persons they believe intend to resell to persons who are non-United States or
Canadian persons, and the International Managers and any dealer to whom they
sell Ordinary Shares will not offer to sell or sell Ordinary Shares to United
States or Canadian persons or to persons they believe intend to resell to United
States or Canadian persons, except, in each case, for transactions pursuant to
the Intersyndicate Agreement.
The U.S. Underwriting Agreement provides that the Company will indemnify
the U.S. Underwriters against certain liabilities, including civil liabilities
under the Securities Act, or will contribute to payments the U.S. Underwriters
may be required to make in respect thereof.
The Company has agreed, following completion of this offering, not to
issue, offer, sell, contract to sell or otherwise dispose of any Ordinary Shares
or securities convertible into or exchangeable or exercisable for Ordinary
Shares without the prior written consent of Montgomery Securities for a period
of 90 days after the date of this Prospectus, except that the Company may,
without such consent, (i) grant options pursuant to its existing employee
benefit plans or issue Ordinary Shares upon exercise of outstanding stock
options, and (ii) issue Ordinary Shares in connection with acquisitions. The
officers and directors and certain employees of the Company have agreed that
they will not sell in excess of an aggregate of 85,000 Ordinary Shares without
the prior written consent of Montgomery Securities for a period of 90 days after
the date of this Prospectus.
In connection with this offering, certain U.S. Underwriters and selling
group members may engage in passive market making transactions in the Ordinary
Shares on the Nasdaq National Market immediately prior to the commencement of
sales in this offering, in accordance with Rule 10b-6A under the Exchange Act.
Passive market making consists of displaying bids on the Nasdaq National Market
that are limited by the bid prices of independent market makers and completing
purchases in response to order flow at prices limited by such bids. Net
purchases by a passive market maker on each day are limited to a specified
percentage of the passive market maker's average daily trading volume in the
Ordinary Shares during a specified period and must be discontinued for any day
in which such limit is reached. Passive market making may stabilize the market
price of the Ordinary Shares at a level above that which might otherwise prevail
and, if commenced, may be discontinued at any time.
CERTAIN LEGAL MATTERS
The validity of the Ordinary Shares offered hereby will be passed upon on
behalf of the Company by Allen & Gledhill, Singapore, legal advisors to the
Company, and on behalf of the Underwriters by Arfat Selvam & Gunasingham,
Singapore legal advisors to the Underwriters. Certain United States legal
matters in connection with this offering will be passed upon for the Company by
Fenwick & West LLP and for the Underwriters by Howard, Rice, Nemerovski, Canady,
Falk & Rabkin, a Professional Corporation.
EXPERTS
The consolidated financial statements and schedules of Flextronics at March
31, 1994, 1995 and 1996 and for each of the three years in the period ended
March 31, 1996 included in this Prospectus and Registration Statement have been
audited by Ernst & Young, independent auditors, as set forth in their report
thereon included herein and in the Registration Statement, and are included in
reliance upon such report given upon the authority of such Firm as experts in
accounting and auditing.
The financial statements and schedules of Astron at December 31, 1995 and
for each of the two years in the period ended December 31, 1995 incorporated by
reference into this Prospectus and Registration Statement have been audited by
Deloitte Touche Tomatsu International, independent auditors, as set forth in
their report thereon incorporated by reference herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
44
<PAGE> 47
The financial statements and schedules of A&A as of June 30, 1993 and 1994
and for each of the two years in the period ended June 30, 1993 and for the
eighteen month period ended December 31, 1994 incorporated by reference in this
Prospectus have been audited by Coopers & Lybrand, independent auditors, as set
forth in their report thereon, and are incorporated by reference in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
45
<PAGE> 48
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Accountants..................................................... F-2
Flextronics International Ltd. Consolidated Balance Sheets for the fiscal years ended
March 31, 1995 and 1996............................................................. F-3
Flextronics International Ltd. Consolidated Statements of Operations for the fiscal
years ended March 31, 1994, 1995 and 1996........................................... F-4
Flextronics International Ltd. Consolidated Statements of Shareholders' Equity........ F-5
Flextronics International Ltd. Consolidated Statements of Cash Flows for the fiscal
years ended March 31, 1994, 1995 and 1996........................................... F-6
Notes to Consolidated Financial Statements............................................ F-8
Flextronics International Ltd. Condensed Consolidated Balance Sheets for the nine
months ended December 31, 1996 and for the fiscal year ended March 31, 1996......... F-22
Flextronics International Ltd. Condensed Consolidated Statements of Income for the
three months ended December 31, 1995 and 1996....................................... F-23
Flextronics International Ltd. Condensed Consolidated Statements of Income for the
nine months ended December 31, 1995 and 1996........................................ F-24
Flextronics International Ltd. Condensed Consolidated Statements of Cash Flows for the
nine months ended December 31, 1995 and 1996........................................ F-25
Notes to Condensed Consolidated Financial Statements.................................. F-26
</TABLE>
F-1
<PAGE> 49
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Flextronics International Ltd.
We have audited the accompanying consolidated balance sheets of Flextronics
International Ltd., as of March 31, 1995 and 1996, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended March 31, 1996. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with U.S. Generally Accepted Auditing
Standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Flextronics International Ltd. at March 31, 1995 and 1996, and the consolidated
results of its operations and its cash flow for each of the three years in the
period ended March 31, 1996, in conformity with U.S. Generally Accepted
Accounting Principles.
/s/ Ernst & Young
ERNST & YOUNG
Singapore
May 13, 1996
F-2
<PAGE> 50
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1995 1996
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash........................................................................... $ 4,751 $ 6,546
Accounts receivable, net of allowance for doubtful accounts of $1,760 and
$3,576 at March 31, 1995 and 1996 respectively............................... 44,250 78,114
Inventories.................................................................... 30,193 52,637
Other current assets........................................................... 4,527 3,827
Deferred income taxes.......................................................... 220 260
-------- -------
Total current assets.................................................... 83,941 141,384
-------- -------
PROPERTY AND EQUIPMENT:
Machinery and equipment........................................................ 43,358 77,771
Building....................................................................... 283 5,736
Leasehold improvements......................................................... 3,891 15,491
-------- -------
47,532 98,998
Accumulated depreciation and amortization...................................... (21,774) (37,896)
-------- -------
Net property and equipment....................................................... 25,758 61,102
-------- -------
OTHER NON-CURRENT ASSETS:
Goodwill, net of accumulated amortization of $1,976 and $2,701, at March 31,
1995 and 1996 respectively................................................... 4,964 8,662
Intangible assets, net of accumulated amortization of $306 and $642, at March
31, 1995 and 1996 respectively............................................... 624 775
Deposits and other............................................................. 226 580
Receivables from related party................................................. -- 2,085
Other investments.............................................................. 520 --
Deferred income taxes.......................................................... 84 --
-------- -------
Total other non-current assets.......................................... 6,418 12,102
-------- -------
TOTAL ASSETS............................................................ $116,117 $214,588
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank borrowings................................................................ $ 2,000 $ 14,379
Notes payable.................................................................. -- 10,000
Current portion of long-term debt.............................................. 9 4,198
Current portion of capital lease............................................... 3,911 6,736
Accounts payable............................................................... 38,489 64,625
Accrued payroll................................................................ 2,549 5,606
Other accrued liabilities...................................................... 2,029 5,389
Income taxes payable........................................................... 1,529 2,775
-------- -------
Total current liabilities............................................... 50,516 113,708
-------- -------
NON CURRENT LIABILITIES:
Notes payable to shareholders.................................................. 684 686
Long-term debt, less current portion........................................... -- 2,554
Other payable.................................................................. -- 15,000
Capital lease, less current portion............................................ 6,206 10,120
Deferred income taxes.......................................................... 994 1,256
Commitments (Notes 4 and 5).................................................... -- --
-------- -------
Total non-current liabilities........................................... 7,884 29,616
Minority interests............................................................... -- 485
-------- -------
SHAREHOLDERS' EQUITY:
Ordinary Shares, S$.01 par value:
Authorized -- 100,000,000 shares at March 31, 1995 and 1996
Issued and outstanding -- 11,603,496 shares at March 31, 1995 and 13,213,289
shares at March 31, 1996.................................................... 73 85
Additional paid-in capital..................................................... 62,882 93,634
Accumulated deficit............................................................ (5,238) (22,940)
-------- -------
Total shareholders' equity.............................................. 57,717 70,779
-------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............................. $116,117 $214,588
======== =======
</TABLE>
See accompanying notes.
F-3
<PAGE> 51
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net sales........................................................ $131,345 $237,386 $448,346
Cost of sales.................................................... 117,392 214,865 406,457
-------- -------- --------
Gross profit..................................................... 13,953 22,521 41,889
Selling, general and administrative expenses..................... 8,667 11,468 18,587
Goodwill amortization............................................ 398 510 725
Intangible assets amortization................................... 21 245 336
Provision for plant closings..................................... 830 -- 2,454
Research and development......................................... 202 91 31,562
-------- -------- --------
Operating income/(loss).......................................... 3,835 10,207 (11,775)
Interest expense................................................. (1,778) (740) (2,718)
Merger expenses.................................................. -- (816) --
Foreign exchange gain (loss)..................................... 402 (303) 872
Income (loss) from joint venture................................. (70) (729) --
-------- -------- --------
Income (loss) before income taxes and cumulative effect
of change in accounting for income taxes....................... 2,389 7,619 (13,621)
Provision for income taxes....................................... 97 1,463 3,791
-------- -------- --------
Income (loss) after income taxes, before cumulative effect of
change in accounting for income taxes and extraordinary gain... 2,292 6,156 (17,412)
Cumulative effect as of March 31, 1994 of change
in accounting for income taxes................................. 557 -- --
-------- -------- --------
Income (loss) before extraordinary gain.......................... 1,735 6,156 (17,412)
Extraordinary gain............................................... 416 -- --
-------- -------- --------
Net income (loss)................................................ $ 2,151 $ 6,156 $(17,412)
======== ======== ========
Earnings per share:
Net income (loss) before cumulative effect of change in
accounting for income taxes and extraordinary gain............. $ 0.30 $ 0.51 $ (1.39)
Cumulative effect of accounting change........................... (0.07) -- --
-------- -------- --------
Net income (loss) before extraordinary gain...................... $ 0.23 $ 0.51 $ (1.39)
Extraordinary gain............................................... 0.05 -- --
-------- -------- --------
Net income (loss) per share...................................... $ 0.28 $ 0.51 $ (1.39)
======== ======== ========
Weighted average outstanding Ordinary Shares and equivalents..... 7,730 12,103 12,536
======== ======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 52
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS "A" CLASS "B"
CONVERTIBLE ------------------------ TOTAL
------------------- CONVERTIBLE REDEEMABLE ADDITIONAL SHARE-
PREFERENCE SHARES PREFERENCE SHARES ORDINARY SHARES PAID-IN RETAINED HOLDERS'
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS EQUITY
---------- ------ ----------- ---------- -------- ------ ---------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31,
1993................ 2,700 $ 15 51 $ -- 2,404 $ 16 $ 10,662 $(12,949) $ (2,256)
Issuance of "A"
Convertible
Preference Shares
for cash............ 27 2 -- -- -- -- 65 -- 67
Issuance of Ordinary
Shares for cash and
from capitalization
of Subordinated Note
Payable............. -- -- -- -- 2,968 19 10,449 -- 10,468
Compensation expense
related to
stock options....... -- -- -- -- -- -- 159 -- 159
Issuance of Ordinary
Shares for
acquisition of
subsidiary.......... -- -- -- -- 600 4 3,998 -- 4,002
Issuance of Ordinary
Shares in the
initial public
offering (net)...... -- -- -- -- 2,500 15 32,088 -- 32,103
Exercise of stock
options............. -- -- -- -- 54 -- -- -- --
Conversion of
Preference Shares to
Ordinary Shares..... (2,727) (17) (51) -- 2,778 17 -- -- --
Net income for the
year................ -- -- -- -- -- -- -- 2,151 2,151
Transaction by pooled
companies:
Issuance of common
stock............. -- -- -- -- -- -- 9 -- 9
---------- ------ --- --- -------- ------ ---------- -------- ------------
BALANCE AT MARCH 31,
1994................ -- $ -- -- $ -- 11,304 $ 71 $ 57,430 $(10,798) $ 46,703
nCHIP fiscal year
conversion.......... -- -- -- -- -- -- -- (596) (596)
Issuance of Ordinary
Shares.............. -- -- -- -- 300 2 925 -- 927
Expenses related to
issuance of Ordinary
Shares.............. -- -- -- -- -- -- (968) -- (968)
Net income for the
year................ -- -- -- -- -- -- -- 6,156 6,156
Transactions by pooled
companies:
Issuance of common
stock............. -- -- -- -- -- -- 37 -- 37
Issuance of
preference
stock............. -- -- -- -- -- -- 5,458 -- 5,458
---------- ------ --- --- -------- ------ ---------- -------- ------------
BALANCE AT MARCH 31,
1995................ -- $ -- -- $ -- 11,604 $ 73 $ 62,882 $(5,238) $ 57,717
Issuance of Ordinary
Shares for
acquisition of
subsidiaries........ -- -- -- -- 305 2 7,443 -- 7,445
Issuance of Ordinary
Shares.............. -- -- -- -- 304 2 1,007 -- 1,009
Secondary listing..... -- -- -- -- 1,000 8 23,492 -- 23,500
Expenses related to
secondary listing... -- -- -- -- -- -- (1,190) -- (1,190)
Currency translation
adjustments......... -- -- -- -- -- -- -- (290) (290)
Net loss for year..... -- -- -- -- -- -- -- (17,412) (17,412)
---------- ------ --- --- -------- ------ ---------- -------- ------------
BALANCE AT MARCH 31,
1996................ -- $ -- -- $ -- 13,213 $ 85 $ 93,634 $(22,940) $ 70,779
========= ======= ========== ========== ======== ======= ========= ======== ========
</TABLE>
See accompanying notes.
F-5
<PAGE> 53
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................................. $ 2,151 $ 6,156 $(17,412)
Adjustments to reconcile to cash provided by operating activities:
nCHIP fiscal year conversion..................................... -- (596) --
Depreciation and amortization of equipment and leasehold
improvements................................................... 4,202 5,370 9,344
Amortization of goodwill......................................... 398 510 725
Amortization of intangible assets................................ 21 245 336
Loss/ (gain)on disposal of property and equipment................ 368 56 (121)
Loss on disposal of investment................................... -- -- 266
Write-off of property and equipment.............................. 20 -- --
Extraordinary gain............................................... (416) -- --
Allowance for doubtful debts..................................... (32) 1,211 1,457
Allowance for stock obsolescence................................. (120) 43 631
Compensation expense relating to stock option plan............... 159 -- --
Loss from joint venture.......................................... 70 729 --
In process research and development written off.................. -- -- 31,562
Provision for plant closure...................................... -- -- 2,454
Deferred income taxes............................................ 339 237 84
-------- -------- --------
$ 7,160 $ 13,961 $ 29,344
Changes in operating assets and liabilities:
Trade accounts receivable........................................ $ (8,306) $(15,057) $(28,965)
Notes receivable................................................. -- -- (500)
Inventories...................................................... (5,863) (3,156) (19,209)
Other accounts receivable........................................ (572) (2,430) 2,889
Due from joint venture........................................... (1,588) -- --
Deposits and other............................................... (121) 311 (140)
Accounts payable................................................. 14,812 2,995 14,143
Other accounts payable........................................... 1,283 (841) 727
Deferred rent.................................................... (1,302) (143) (120)
Income taxes payable............................................. 111 933 1,121
-------- -------- --------
Cash provided by (used for) operating activities............ $ 5,614 $ (3,427) $ (710)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment................................. $ (5,246) $ (7,536) $(15,812)
Proceeds from sale of property and equipment....................... 2,301 38 228
Intangibles arising from acquisition of subsidiaries............... -- (62) --
Other investments.................................................. (120) -- 886
Investment to join venture......................................... (2,529) -- --
Restricted cash.................................................... 379 -- --
Loan to joint venture.............................................. -- (1,000) --
Redemption of preference shares in joint venture................... -- 1,730 --
Payment for business acquired, net of cash acquired................ -- (3,343) (15,152)
Repayment of loan from related party............................... -- -- 815
-------- -------- --------
Cash used for investing activities.......................... $ (5,215) $(10,173) $(29,035)
</TABLE>
F-6
<PAGE> 54
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowing from (repayments to) banks............................... $ 1,177 $ (9,417) $ 12,280
Proceeds from (repayment of) long-term debt........................ (13,008) (8) 1,803
Repayment of capital lease obligations............................. (1,998) (4,310) (5,767)
Proceeds from issuance of share capital............................ 38,598 5,454 1,009
Proceeds from notes payable........................................ 1,449 -- --
Payments on notes payable.......................................... (224) (2,535) (17)
Proceeds from secondary listing.................................... -- -- 22,310
-------- -------- --------
Cash provided by (used for) financing activities............ 25,994 (10,816) 31,618
-------- -------- --------
Increase (decrease) in cash and cash equivalents................... $ 26,393 $(24,415) $ 1,873
Effect of exchange rate changes on cash and cash equivalents....... -- -- (78)
Cash and cash equivalents at beginning of period................... 2,774 29,167 4,751
-------- -------- --------
Cash and cash equivalents at end of period.................. $ 29,167 $ 4,751 $ 6,546
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid (refunded) for:
Interest......................................................... $ 1,579 $ 779 $ 2,482
Income taxes..................................................... (200) 297 2,656
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Equipment acquired under capital lease obligations................. 494 8,338 11,556
Additional ordinary shares issued upon conversion of subordinated
note debt........................................................ 3,658 -- --
Purchase of subsidiaries financed by issuance of
600,000 ordinary shares valued at $6.67.......................... 4,002 -- --
66,908 ordinary shares valued at $14.019......................... -- -- 938
238,684 ordinary shares valued at $27.262........................ -- -- 6,507
</TABLE>
See accompanying notes.
F-7
<PAGE> 55
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION OF THE COMPANY
Flextronics International Ltd. was incorporated in the Republic of
Singapore on May 31, 1990 as Flex Holdings Pte Limited. The subsidiary companies
are located in Singapore, Malaysia, Hong Kong, the People's Republic of China,
United Kingdom, Mauritius and the United States. The Company was incorporated to
acquire the Asian and certain U.S. operations of Flextronics Inc. (the
"Predecessor"). The Predecessor had been involved in contract manufacturing
operations in Singapore since 1982, Hong Kong since 1983 and the People's
Republic of China since 1987.
The Company offers advanced contract manufacturing services to
sophisticated original equipment manufacturers (OEMs) in the communications,
computer, consumer and medical electronics industries. Flextronics offers a full
range of services including microelectronics packages and printed circuit board
(PCB) assembly design and fabrication, material procurement, inventory
management, PCB assembly, final systems box build and distribution.
The Company's fiscal year-end is March 31. The Company follows accounting
policies which are in accordance with principles generally accepted in the
United States.
2. SUMMARY OF ACCOUNTING POLICIES
Basics 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 inter-company balances and transactions.
Investments in affiliates owned 20% or more and corporate joint ventures in
which the Company does not have control, but has the ability to exercise
significant management influence over operating and financial policies, are
accounted for by the equity method. Other securities and investments are
generally carried at cost.
All dollar amounts included in the financial statements and in the notes
herein are U.S. dollars unless designated as Singapore dollars (S$).
Foreign exchange
The Company, with the exception of certain subsidiaries, considers the U.S.
dollar as its functional currency. This is because the majority of the Company's
sales are billed and collected in U.S. dollars, and the majority of the
Company's purchases, such as raw materials, are invoiced and paid in U.S.
dollars.
Accordingly, transactions in currencies other than the functional currency
are measured and recorded in U.S. dollars using the exchange rate in effect at
the date of the transaction. At each balance sheet date, recorded monetary
balances that are denominated in currencies other than the functional currency
are adjusted to reflect the rate at the balance sheet date. All gains and losses
resulting from the translation of accounts designated in other than the
functional currency are reflected in the determination of net income in the year
in which they occur.
For inclusion in the consolidated financial statements, all assets and
liabilities of foreign subsidiaries having a functional currency other than the
U.S. dollar are translated into U.S. dollars at the exchange rate ruling at the
balance sheet date and the results of these foreign subsidiaries are translated
into U.S. dollars at the weighted average exchange rates. Exchange differences
due to such currency translations are recorded in shareholders' equity.
F-8
<PAGE> 56
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Cash and cash equivalents
For purposes of statement of cash flows, the Company considers highly
liquid investments with a maturity of three months or less when purchased to be
cash equivalents.
Property and equipment
Property and equipment is stated at cost. Depreciation and amortization are
provided on a straight-line basis over the estimated useful lives of the related
assets (two to twenty-two years).
Concentration of credit risk
The Company is a turnkey manufacturer of sophisticated electronics for
original equipment manufacturers engaged in the communications, computer,
consumer electronics and medical industries. Financial instruments which
potentially subject the Company to concentration of credit risk are primarily
accounts receivable and cash equivalents. The Company performs ongoing credit
evaluations of its customers' financial conditions and, generally, requires no
collateral from its customers. The Company maintains cash and cash equivalents
with various financial institutions. These financial institutions are located in
many different geographic locations throughout the world.
The allowance for doubtful accounts the Company maintains is based upon the
expected collectibility of all accounts receivable.
Goodwill
Goodwill represents the excess of the purchase price of acquired companies
over the fair value of the net assets acquired. Goodwill is amortized on a
straight line basis over the estimated life of the benefits received which
ranges from ten to twenty-five years. On an annual basis, the Company evaluates
recorded goodwill for potential impairment against the current and estimated
undiscounted future operating income before goodwill amortization of the
businesses to which the goodwill relates.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Intangible assets
Intangible assets comprise technical agreements, patents, trademarks and
identifiable intangible assets in a subsidiary's assembled work force, its
favorable lease and its customer list.
Technical agreements are being amortized on a straight line basis over
periods not exceeding five years. Patents and trademarks are being amortized on
a straight line basis over periods not exceeding seventeen years. The
identifiable intangible assets in the subsidiary's assembled work force, its
favourable lease and its customer list are amortized on a straight line basis
over the estimated life of the benefits received of three years.
F-9
<PAGE> 57
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories are stated at the lower of cost or market value. Cost is
comprised of direct materials on a first-in-first-out basis and in the case of
finished products and work-in-progress includes direct labor and attributable
production overheads based on normal levels of activity. The components of
inventories are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Raw materials.................................................... $21,691 $42,202
Work-in-process.................................................. 10,249 14,049
Finished goods................................................... 128 962
------- -------
32,068 57,213
Less: allowances -- for obsolescence............................. (1,875) (4,576)
------- -------
$30,193 $52,637
======= =======
</TABLE>
Revenue recognition
Revenue from product sales and services are recognized on delivery and
acceptance of the goods.
Income taxes
Effective April 1, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method required by SFAS
Statement No. 109, "Accounting for Income Taxes".
Net Income per share
Net income per share is computed using the weighted average number of
Ordinary Shares and Ordinary Share equivalents outstanding during the respective
periods. Ordinary Share equivalents include Ordinary Shares issuable upon the
exercise of stock options (using the treasury stock method). Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin (SAB) No. 83,
Ordinary Shares and Ordinary Share equivalents issued by the Company during the
twelve-month period prior to the initial public offering have been included in
the calculation of Ordinary Shares and Ordinary Share equivalents using the
treasury stock method and the initial public offering price of $14 per share as
if they were outstanding for all periods presented.
<TABLE>
<CAPTION>
1994 1995 1996
------ ------- -------
(IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C>
Supplemental net income/(loss) per share............... $ 0.32 $ 0.51 $ (1.39)
Weighted average ordinary shares....................... 6,740 12,103 12,536
</TABLE>
Supplemental net income/(loss) per share is calculated in accordance with
Accounting Principles Board Opinion No. 15 (APB 15). The supplemental net
income/(loss) per share amounts are presented for comparison purposes because
under APB 15 the effect of options is excluded from the net income/(loss) per
share calculation if anti-dilutive, whereas, under SAB No. 83, such options are
considered outstanding even if the effect of including them is anti-dilutive.
Retroactive restatements
The consolidated financial statements give retroactive effect to the
acquisition of nCHIP, Inc. ("nCHIP") in January 1995 which was accounted for as
a pooling of interest.
F-10
<PAGE> 58
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Financial statement prepared in accordance with accounting principles accepted
in Singapore
A separate financial statement for the same period has been prepared in
accordance with accounting principles accepted in Singapore.
3. BANK BORROWINGS
Line of Credit
Three of the Company's subsidiaries have obtained from several banks
working capital lines of credit, totalling approximately $48 million,
representing overdraft facilities, bridging loan, short term cash advances,
letters of credit and letters of guarantee and trust receipts. Interest on
borrowings is charged within the range 5.75% to 7.125% per annum.
The lines of credits are collateralized by:
(a) negative pledge on assets of all the group entities;
(b) corporate guarantees from the Company and its subsidiaries;
These lines of credits require that the Company maintains certain financial
ratios and other covenants. As of March 31, 1996, the Company was in compliance
with its covenants.
As of March 31, 1996, the Company had utilized the following credit
facilities under the above lines of credit (in thousands):
<TABLE>
<S> <C>
Short term cash advances................................................... $14,379
Letters of credits and guarantees.......................................... $ 1,003
=======
</TABLE>
The remaining unused portion of lines of credit total $32.5 million.
The weighted average interest rates on borrowing are as follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------
1995 1996
----- ----
<S> <C> <C>
Interest on borrowings................................................ 6.438% 6.41%
</TABLE>
4. LONG TERM DEBT
Long-term debt consisted of the following at March 31, 1996.
<TABLE>
<CAPTION>
1995 1996
---- -------
<S> <C> <C>
Term loan at 4.5%.................................................. $ -- $ 333
Mortgage loans at 10.5%............................................ -- 2,244
Other loans at 8%.................................................. 9 1,050
Purchase obligation earnout........................................ -- 3,125
---- ------
9 6,752
Less: current portion.............................................. (9) (4,198)
---- ------
$ -- $ 2,554
==== ======
</TABLE>
Maturities of long-term debt for the five years succeeding March 31, 1996
are $4,198,000 by March 31, 1997, $740,000 by March 31, 1998, $645,000 by March
31, 1999, $358,000 by March 31, 2000 and $358,000 by March 31, 2001.
The purchase obligation earnout is contingent upon Astron Group Limited
meeting certain pre-tax profit for the calendar year 1996.
F-11
<PAGE> 59
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LEASE COMMITMENTS
Capital Lease
Following is a schedule by fiscal year, of future minimum lease payments
under capital lease obligations for certain machinery and equipment, together
with the present value of the net minimum lease payments (in thousands):
<TABLE>
<S> <C>
Fiscal Years Ending March 31,
1997.................................................................. $ 7,960
1998.................................................................. 5,987
1999.................................................................. 3,411
2000.................................................................. 1,472
2001.................................................................. 503
Thereafter............................................................ --
-------
Total installment payments................................................. 19,333
Amount representing interest............................................... (2,477)
-------
Present value of net installation payments................................. 16,856
Less: current portion...................................................... 6,736
-------
Long-term portion of capital lease......................................... $10,120
=======
</TABLE>
Items costing $28,387,304 (1995: $15,993,603) with accumulated amortization
$8,780,878 (1995: $4,168,453) purchased under capital leases have been included
in machinery and equipment as of March 31, 1996. Lease amortization is included
in depreciation expense.
Operating Leases
The Company leases some of its facilities under operating leases. Future
minimum lease payments under operating leases with a term of more than one year
are as follows (in thousands):
<TABLE>
<S> <C>
Fiscal Years Ending March 31,
1997................................................................... $2,177
1998................................................................... 1,782
1999................................................................... 1,530
2000................................................................... 1,147
2001................................................................... 793
Thereafter.................................................................. 1,890
------
$9,319
======
</TABLE>
The facilities lease of one of the subsidiaries provides for escalating
rental payments over the lease period. Rent expense is being recognized on a
straight-line basis over the term of the lease period.
Total operating lease expense for the Company was $1,263,019, $1,956,733
and $2,211,077 for the years ended March 31, 1994, 1995 and 1996 respectively.
6. CAPITAL COMMITMENTS
One of the subsidiaries, Flextronics (Malaysia) Sdn. Bhd. has contracted to
purchase $457,714 of fixed assets as of March 31, 1996. These fixed assets have
not been delivered and are therefore not provided for in the accounts as of
March 31, 1996.
F-12
<PAGE> 60
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. INCOME TAXES
The domestic and foreign components of income (loss) before taxes are as
follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------
1994 1995 1996
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Singapore............................................ $ (412) $(1,529) $(21,917)
Foreign.............................................. 2,801 9,148 8,296
------- ------- --------
$ 2,389 $ 7,619 $(13,621)
======= ======= ========
</TABLE>
Income tax expense consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1994 1995 1996
---- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Singapore................................................ $226 $ 336 $1,441
Foreign.................................................. 89 860 2,266
----- ------- -------
-- -
315 1,226 3,707
----- ------- -------
-- -
Deferred:
Singapore................................................ 339 237 74
Foreign.................................................. -- -- 10
----- ------- -------
-- -
339 237 84
----- ------- -------
-- -
$654 $1,463 $3,791
======= ======= ========
</TABLE>
Total income tax expense differs from the amount computed by applying the
Singapore statutory income tax rate of 26% (1995 and 1994: 27%) to income before
taxes as follows:
<TABLE>
<CAPTION>
MARCH 31,
-----------------------------
1994 1995 1996
----- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Computed expected income taxes.......................... $ 654 $ 2,057 $(3,541)
Effect of Singapore income tax incentives............... (278) -- (82)
Effect of losses from non-incentive Singapore
operations............................................ 255 367 8,472
Effect of foreign operations............................ (667) (1,609) (1,785)
Non-deductible items:
Amortization and goodwill and intangibles............. 113 205 270
Loss on sale of investments........................... -- -- 69
Joint venture losses.................................. -- 216 --
Others.................................................. 29 227 388
------- --------
------
-
1,463 3,791
97
Cumulative effect of March 31, 1993 of change from
deferral method to liability method................... -- --
557
------- --------
------
-
$ 1,463 $ 3,791
$ 654
======= ========
=======
</TABLE>
F-13
<PAGE> 61
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of deferred income taxes are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1995 1996
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Fixed assets................................................. $ 1,466 $ 1,365
Others....................................................... 486 193
-------- --------
1,952 1,558
-------- --------
Deferred tax assets
Provision for stock obsolescence............................. (249) (677)
Provision for doubtful debts................................. (180) (343)
Net operating losses carry forwards.......................... (11,032) (11,020)
Unabsorbed capital allowances carried forwards............... (731) (438)
Investment allowance......................................... (84) --
Others....................................................... (118) (699)
-------- --------
(12,394) (13,177)
Valuation allowance............................................ 11,132 12,615
-------- --------
Net deferred tax liability..................................... $ 690 $ 996
======== ========
The net deferred tax liability is classified as follows:
Non-current liability........................................ $ 994 $ 1,256
Current asset................................................ (220) (260)
Non-current asset............................................ (84) --
-------- --------
$ 690 $ 996
======== ========
</TABLE>
The Company has been granted the following tax incentives:
(i) Investment allowance on approved fixed capital expenditure
incurred within 5 years after August 1, 1990 subject to a maximum of
$2,700,000 for its Singapore operations was granted by the Economic
Development Board of Singapore. This investment allowance has been utilized
by the Company to reduce taxable income of its Singapore subsidiary since
1991. This allowance is however fully utilized at the end of the year.
(ii) Pioneer status granted to one of its Malaysian subsidiary for a
period of 5 years under the Promotion of Investment Act, 1986. This pioneer
incentive provides a tax exemption on manufacturing income of this
subsidiary.
(iii) Product Export Enterprise incentive for a lower rate for its
China operations. The Company's operations in China is located in a
"Special Economic Zone" an is an approved "Product Export Enterprise" which
qualifies for a special corporate income tax rate of 10%. This special tax
rate is subject to the Company exporting more than 70% of its total value
of products manufactured in China. The Company's status as a Product Export
Enterprise is reviewed annually by the Chinese government authorities.
A portion of the Company's sales are carried out by its subsidiary in
Labuan, Malaysia where the Company has opted to pay the Labuan tax authorities a
fixed amount of $8,000 tax each year in accordance with the Labuan tax
legislation. Also a portion of the Company's sales are carried out by its
subsidiary, an offshore ordinary company, in Mauritius where the tax rate is at
0% for such companies.
F-14
<PAGE> 62
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. SHAREHOLDERS' EQUITY
Exercise of Options
During the year, certain employees exercised their options to purchase
304,201 Ordinary Shares at an exercise price of $0.77 to $14.50 per share.
Acquisition of Flextronics International (UK) Limited ("FILUK") (formerly known
as
Assembly & Automation (Electronics) Limited)
On April 12, 1995, the Company acquired all the outstanding stock of FILUK
in exchange for $2,878,860 in cash and 66,908 Ordinary Shares of the Company,
valued at $14.019 per share.
Acquisition of Astron Group Limited ("Astron")
On February 2, 1996, the Company acquired all the outstanding stock of
Astron in exchange for $13,440,605 in cash; 238,684 Ordinary Shares of the
Company, valued at $27.262 per share; issuance of a $10 million promissory note
due one year after acquisition date; issuance of a $5 million promissory note
due two years after acquisition date and the issuance of $10 million of Ordinary
Shares of the capital of the Company on June 30, 1998. The promissory notes
shall bear interest at the rate of 8% per annum.
Foreign Currency Payments in the Company's subsidiaries operating in the
People's Republic of China
The Company's subsidiaries operating in the People's Republic of China are
required to obtain approval from the relevant authorities when making foreign
currency payments.
9. SHARE OPTION PLANS
In July 1993, the Company adopted an Executives' Share Option Scheme
("SOS") and an Executives' Incentive Share Scheme ("ISS") for selected
management employees of the Company. The Company granted stock options for
344,520 Ordinary Shares exercisable at $2.92 per share (fair market value at
date of the grant) under the SOS and stock options for 54,618 Ordinary Shares at
S$0.01 per share (fair market value at date of grant was $2.92 per share) under
the ISS. In February 1994, 53,748 Ordinary Shares were issued due to the
exercise of the options under ISS. During fiscal 1994, the Company amortized the
full compensation expense of $159,303. In March 1994, 53,748 Ordinary Shares
were issued due to the exercise of the options granted under ISS.
On December 1, 1993, the Company adopted the 1993 Share Option Plan (the
"Plan") that provides for the grant of incentive stock options, automatic option
grants and non-statutory stock options to employees and other qualified
individuals to purchase Ordinary Shares of the Company. At March 31, 1995, the
Company had reserved 900,000 Ordinary Shares for issuance under the plan. In
August 1995, the Company's 1993 Share Option Plan was amended to reserve an
additional 600,000 Ordinary Shares for issuance and, in August 1996, was again
amended to reserve an additional 500,000 Ordinary Shares for issuance.
In January 1995, the Company acquired nCHIP and thereby assumed the
existing nCHIP stock option plan and the employee stock options outstanding
thereunder. The outstanding nCHIP employee stock options were converted into
options to purchase approximately 345,389 of the Company's Ordinary Shares.
As at March 31, 1996, options to purchase 1,327,000 Ordinary Shares at a
weighted average exercise price of $12.63 per share were outstanding under the
share option plans.
F-15
<PAGE> 63
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table presents the activity for options:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------------------
OPTIONS
AVAILABLE
FOR GRANT SHARES PRICE PER SHARE
--------- ---------- --------------------
<S> <C> <C> <C>
BALANCE AT MARCH 31, 1994............ 649,872 729,180 S$0.01 -- US$6.67
nCHIP options converted to Flex
options............................ 345,389 -- US$0.77 -- US$4.74
Options granted...................... (508,501) 508,501 US$0.77 -- US$16.75
Options exercised.................... -- (143,699) US$2.92 -- US$4.33
Options cancelled.......... 33,418 (33,418) US$2.92 -- US$10.50
-------- --------- -------------------
BALANCE AT MARCH 31, 1995............ 520,178 1,060,564 US$2.92 -- US$16.75
Increase in options available for
grant.............................. 600,000 -- S$0.01 -- US$35.75
Options granted...................... (641,783) 641,783 US$14.75 -- US$35.75
Options exercised.................... -- (304,201) US$0.77 -- US$14.50
Options cancelled.................... 71,146 (71,146) US$0.77 -- US$24.00
-------- --------- -------------------
BALANCE AT MARCH 31, 1996............ 549,541 1,327,000
======== =========
</TABLE>
10. PROVISION FOR PLANT CLOSURE
The provision for plant closure of $2,454,000 relates to the downsizing of
the Malaysia and Shekou, China manufacturing operations. The provision includes
$1 million provision for inventory exposure and $200,000 provision for doubtful
debts related to one specific project in Malaysia. An amount of $1,254,000
associated with certain obsolete equipment at the Company's facilities in
Malaysia and Shekou, China has been written off.
11. EXTRAORDINARY ITEM
In July 1993, the Company recognized $416,000 of extraordinary gain in
connection with the forgiveness of accrued interest on a subordinated note.
12. RELATED PARTY TRANSACTIONS
For the year ended March 31, 1996, the Company had net sales of $2,132,972
to Metcal, Inc., a precision heating instrument company. Prior to becoming the
Company's Chief Executive Officer in January 1994, Michael E. Marks was the
President and Chief Executive Officer of Metcal, Inc. Michael E. Marks remained
as a director of Metcal, Inc. during the year ended march 31, 1996.
For the year ended March 31, 1995, the Company had net sales of $989,220 to
Metcal, Inc.
Following the acquisition of Astron, its Managing Director, Stephen JL
Rees, was made a director of the Company on April 15, 1996. At the date of the
Astron acquisition a loan of $2,908,000 to Mayfield International Limited
("Mayfield"), a company in which Stephen JL Rees has a beneficial interest, was
outstanding. At March 31, 1996 the loan balance amounted to $2,085,082. The loan
is secured by a corporate guarantee from Mayfield's holding company and it bears
interest at 7.15% per annum, earning $26,911 in the period. Astron has also
rented an office from Mayfield, and rentals charged to Astron during the period
amounted to $34,669.
In May 1993, Flextronics (Malaysia) Sdn. Bhd. sold plant and machinery to
FlexTracker Sdn. Bhd. valued at $2,033,315. In December 1993, Flextronics
(Malaysia) Sdn. Bhd. repurchased a portion of such plant and machinery from
FlexTracker Sdn. Bhd. worth $251,654. The sale and purchase of plant and
machinery represent the net book value recorded in the parties' books at the
date of transfer. During the year
F-16
<PAGE> 64
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ended March 1994, Flextronics (Singapore) Pte. Ltd. purchased $8,692,917 worth
of materials on behalf of FlexTracker Sdn. Bhd. The transfer of these materials
to FlexTracker Sdn. Bhd. was at original cost of the materials.
13. MERGERS, ACQUISITIONS AND STRATEGIC INVESTMENTS
Current Year
On April 12, 1995, the Company acquired all of the issued share capital of
Assembly & Automation (Electronics) Limited, a private limited company
incorporated in the UK that provides contract manufacture of electronics and
telecommunications equipment, for a total consideration of $4.1 million by way
of cash and the issuance of 66,908 Ordinary Shares. The transaction has been
accounted for under the purchase method, and accordingly, the purchase price has
been allocated to the assets and liabilities assumed based upon their estimated
fair market values at the date of acquisition. The excess of the purchase price
over the fair market value of the net tangible assets acquired aggregated
approximately $4.6 million of which $237,000 was allocated to intangible 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 $45.6 million by way of cash;
issuance of 238,864 Ordinary Shares and $10 million of Ordinary Shares of the
Company on June 30, 1998; and the issuance of promissory notes bearing interest
at 8%. The Company will pay an earnout of up to $12.5 million contingent upon
Astron meeting certain pre-tax profit for calendar year 1996, and, in addition,
to the $45.6 million the Company has included $3.125 million of the earnout as
part of the purchase consideration. The transaction has been accounted for under
the purchase method, and accordingly, the purchase price has been allocated to
the assets and liabilities assumed based upon their estimated fair market values
at the date of acquisition. The valuation of Astron's In-process research &
development was determined by an independent corporate valuation firm to be
between $31 million to $37 million, and the Company has written off $31.6
million in the consolidated financial statements this year. An amount of
$250,000 was allocated to intangibles which are being amortized on a straight
line basis over their estimated useful life of three years.
The Company has entered into consulting agreements with the former Chairman
of Astron, which provide for an annual fee, plus a $15 million payment to be
made and expensed on June 30, 1998 subject to certain terms and conditions to be
met, which include continuation of employment and non-competition clauses.
The consolidated financial statements contain the results of the acquired
companies from the date of acquisition.
The following unaudited pro forma information of the Company reflects the
results of operations for the year ended March 31, 1995 and 1996 as if the
acquisitions of Assembly & Automation (Electronics) Limited and Astron Group
Limited had occurred as of April 1, 1994 and after giving effect to certain
adjustments including amortizing of intangibles and goodwill. The unaudited pro
forma information is based on acquired entities' results of operations for the
years ended December 31, 1994 and 1995 as the fiscal year and of these entities
and the rest of the group are non-coterminus. These pro forma results have been
prepared for
F-17
<PAGE> 65
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
comparative purposes only and do not purport to be indicative of what operating
results would have been had the acquisitions actually took place at April 1,
1994 or of operating results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------
1995 1996
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATE
UNAUDITED)
<S> <C> <C>
Net sales...................................................... $273,872 $466,039
Net income/(loss).............................................. (28,017) 13,413
Net income/(loss) per share.................................... (2.26) 1.00
</TABLE>
Previous Years
In January 1995, the Company acquired nCHIP by the issuance of 2,104,602
ordinary shares of S$0.01 par value each, in exchange for all of the outstanding
capital of nCHIP. In addition, outstanding nCHIP employee stock options were
converted into options to purchase approximately 345,389 of the Company's
ordinary shares. The transaction was accounted for as a pooling of interest and
therefore all prior period financial statements presented have been restated as
if the acquisition took place at the beginning of such periods.
nCHIP has a calendar year end and, accordingly, the nCHIP statement of
income for the year ended December 31, 1993 have been combined with the
Company's statement of income for the fiscal years ended March 1994. Effective
April 1, 1994 nCHIP's fiscal year end has been changed from December 31 to March
31 to conform to the Company's fiscal year-end. Accordingly, nCHIP's operations
for the three months ended March 31, 1994 including net sales of $2,302,218 and
net loss of $595,868 have been excluded from consolidated results and have been
reported as an adjustment to the April 1, 1994 consolidated retained earnings.
Separate results of operations for the period prior to the acquisition are
as follows:
<TABLE>
<CAPTION>
UNAUDITED
FISCAL YEAR NINE MONTHS
ENDED ENDED
MARCH 31, DECEMBER 31,
1994 1994
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Net sales
Company.................................................... $ 122,948 $163,249
nCHIP...................................................... 8,397 7,623
-------- --------
Combined................................................... $ 131,345 $170,872
======== ========
Net income
Company.................................................... $ 2,896 $ 7,626
nCHIP...................................................... (745) (3,400)
-------- --------
Combined................................................... $ 2,151 $ 4,226
======== ========
Other changes in shareholders' equity
Company.................................................... $ 50,098 $ (144)
nCHIP...................................................... 9 5,287
-------- --------
Combined................................................... $ 50,107 $ 5,143
======== ========
</TABLE>
F-18
<PAGE> 66
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
As of December 20, 1994, the Company had a 49% interest in FlexTracker and
accounted for this investment using the equity method. On December 30, 1994, the
Company acquired the net assets (except the $1.0 million loan made by the joint
venture partner, HTS, to FlexTracker) for approximately $3.3 million.
On March 1, 1994, the Company acquired all of the outstanding stock of
Relevant, a company that provides high value-added, high quality, just-in-time
manufacturing services to original equipment manufacturers in the computer and
electronics industry, for approximately $4.0 million. The transaction has been
accounted for under the purchase method, and accordingly, the purchase price has
been allocated to the assets acquired and liabilities assumed based upon their
estimated fair market values at the date of acquisition. Such allocated has been
based on the valuation by an independent corporate valuation firm. The excess of
the purchase price over the fair market value of the net tangible assets
acquired aggregated approximately $2.4 million and are being amortized on a
straight-line basis over their estimated useful life of twenty-five years
The operating results of Relevant are included in the Company's
consolidated results of operations from the date of acquisition.
The following unaudited pro forma information of the Company reflects the
results of operations for the years ended March 31, 1994 and 1995 as if the
acquisitions of nCHIP, the net assets and business of Flextracker and Relevant
had occurred as of April 1, 1993 and after giving effect to certain adjustments
including amortization of intangibles and goodwill. The unaudited pro forma
information is based on certain acquired entities' results of operations for the
years ended December 31, 1993 and 1994 as the fiscal year end of these entities
and the rest of the group are not co-terminus. These pro forma results have been
prepared for comparative purposes only and do not purport to be indicative of
what operating results would have been had the acquisition actually took place
at April 1, 1993 or of operating results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------
1994 1995
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE DATE
UNAUDITED)
<S> <C> <C>
Net Sales...................................................... $155,349 $255,733
Net income before Extraordinary Gain........................... 92 4,301
Net income after Extraordinary Gain............................ 508 4,301
Net income per share........................................... 0.07 0.36
</TABLE>
14. SEGMENT REPORTING
The Company operates in one primary business segment -- providing
sophisticated electronics assembly and turnkey manufacturing services to a
select group of original equipment manufacturers engaged in the computer,
medical, consumer electronics and communications industries. Sales to major
customers who accounted for more than 10% of net sales were as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------------
1994 1995 1996
------ ------ -------
<S> <C> <C> <C>
CUSTOMER
Visioneer................................................. 0.44% 1.70% 13.14%
Lifescan.................................................. 22.8% 20.1% 14.10%
IBM....................................................... 14.4% 7.7% 2.80%
Global Village............................................ -- 4.50% 10.50%
</TABLE>
F-19
<PAGE> 67
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sales for similar classes of products within the Company's business segment
is presented below (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
PRODUCT TYPE
Medical............................................ $ 30,076 $ 49,152 $ 78,322
Computer, computer peripherals and
telecommunications............................... 64,865 120,818 285,881
Industrial......................................... -- -- 9,664
Consumer products.................................. 15,792 47,515 23,858
MCMs............................................... 8,397 11,847 19,817
Disk drive/tape drive.............................. 4,331 -- --
Others............................................. 7,884 8,054 30,804
-------- -------- --------
$131,345 $237,386 $448,346
======== ======== ========
</TABLE>
A summary of the Company's operations by geographical area for the three
years ended March 31, 1994, 1995 and 1996 was as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
NET SALES:
Singapore:
Unaffiliated customers
Domestic............................................ $ 29,151 $ 3,596 $ 653
Export.............................................. -- 7,358 9,277
Intercompany.......................................... 32,849 67,572 77,899
-------- -------- --------
62,000 78,526 87,829
Hong Kong/China and Malaysia:
Unaffiliated customers
Domestic............................................ 6,452 17,757 11,838
Export.............................................. 83,668 158,169 204,850
Intercompany.......................................... 21,415 29,356 60,780
-------- -------- --------
111,535 205,282 277,468
USA/UK:
Unaffiliated customers
Domestic............................................ 12,074 50,506 207,961
Export.............................................. -- -- 13,767
Intercompany........................................ -- -- 27
-------- -------- --------
12,074 50,506 221,755
Eliminations............................................. (54,264) (96,928) (138,706)
-------- -------- --------
$131,345 $237,386 $448,346
======== ======== ========
</TABLE>
F-20
<PAGE> 68
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31,
1994 1995 1996
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income (loss) from operations:
Singapore................................................ $ 553 $ 90 $(27,674)
Hong Kong/China and Malaysia............................. 2,913 11,392 12,843
USA/UK................................................... 369 (1,275) 3,056
-------- -------- --------
$ 3,835 $ 10,207 $(11,775)
======== ======== ========
Identifiable assets:
Singapore................................................ $ 46,115 $ 23,426 $ 31,998
Hong Kong/China and Malaysia............................. 49,956 66,315 97,977
USA/UK................................................... 7,058 26,376 84,613
-------- -------- --------
$103,129 $116,117 $214,588
======== ======== ========
</TABLE>
Geographic revenue transfers are based on selling prices to unaffiliated
companies, less discounts. Income (loss) from operations is net sales less
operating expenses, goodwill amortization and provision for plant closings, but
prior to interest or other expenses and income taxes.
The Company's subsidiaries, with the exception of Astron Group Limited, are
interdependent and are not managed for stand alone results. Certain operational
functions for the entire Company, such as marketing and administration, may be
carried out by a subsidiary in one country. In addition, the Company may from
time to time shift responsibilities from a subsidiary in one country to a
subsidiary in another country, thereby changing the operating results of the
impacted subsidiaries but not the Company as a whole. For these reasons, the
Company believes that changes in results of operations in the individual
countries in which it operates are not necessarily reflective of material
changes in the Company's overall results.
F-21
<PAGE> 69
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH
DECEMBER 31, 31,
1996 1996*
------------ --------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current Assets
Cash............................................................... $ 13,578 $ 6,546
Accounts receivable, net........................................... 67,194 78,114
Inventories -- Note B.............................................. 45,262 52,637
Other current assets............................................... 4,343 4,087
-------- --------
Total current assets............................................... 130,377 141,384
-------- --------
Property and equipment
At cost............................................................ 110,716 98,998
Accumulated depreciation........................................... (39,715) (37,896)
-------- --------
Net property and equipment......................................... 71,001 61,102
-------- --------
Other non-current assets............................................. 16,556 12,102
-------- --------
TOTAL ASSETS......................................................... $217,934 $214,588
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Bank borrowings.................................................... $ 5,710 $ 14,379
Current portion of capital lease and long-term debt................ 21,908 20,934
Accounts payable................................................... 59,500 64,625
Other current liabilities.......................................... 17,054 13,770
-------- --------
Total current liabilities.......................................... 104,172 113,708
-------- --------
Long term debt, less current portion................................. 18,985 17,554
Capital leases, less current portion................................. 9,034 10,120
Deferred income taxes................................................ 1,256 1,256
Notes payable to shareholders........................................ 400 686
Minority interest.................................................... 485 485
Shareholders' equity
Ordinary shares, S$0.01 par value:
Authorized -- 100,000,000 shares at March 31, 1996 and December
31, 1996
Issued and outstanding -- 13,213,289 shares at March 31, 1996
and 13,581,791 shares at December 31, 1996..................... 87 85
Additional paid-in capital......................................... 94,652 93,634
Accumulated deficit................................................ (11,137) (22,940)
-------- --------
Total shareholders' equity......................................... 83,602 70,779
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY........................... $217,934 $214,588
======== ========
</TABLE>
- ---------------
* The balance sheet at March 31, 1996 has been derived from audited financial
statements at that date but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
See notes to condensed consolidated financial statements.
F-22
<PAGE> 70
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
---------------------
1996 1995
-------- --------
<S> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales.............................................................. $121,525 $131,816
Costs and expenses:
Cost of sales........................................................ 111,477 119,996
Selling, general and administrative expenses......................... 6,922 4,989
Goodwill and intangible amortization................................. 288 264
Provision for plant closings......................................... 2,321 0
Interest expense and other, net...................................... 78 354
-------- --------
121,086 125,603
Income before income taxes........................................... 439 6,213
Provision for income taxes........................................... 371 1,211
-------- --------
Net income after income taxes.......................................... $ 68 $ 5,002
======== ========
Earnings per share:
Net income per share................................................. $ 0.01 $ 0.37
-------- --------
Weighted average ordinary shares and equivalents....................... 14,470 13,702
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-23
<PAGE> 71
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
---------------------
1996 1995
-------- --------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Net sales.............................................................. $362,264 $322,645
Costs and expenses:
Cost of sales........................................................ 325,827 293,461
Selling, general and administrative expenses......................... 19,101 13,255
Goodwill and intangible amortization................................. 863 783
Provision for plant closings......................................... 2,321 0
Interest expense and other, net...................................... 1,450 1,121
-------- --------
349,562 308,620
Income before income taxes........................................... 12,702 14,025
Provision for income taxes........................................... 2,166 2,399
-------- --------
Net income after income taxes.......................................... $ 10,536 $ 11,626
======== ========
Earnings per share:
Net income per share................................................. $ 0.73 $ 0.89
======== ========
Weighted average ordinary shares and equivalents....................... 14,377 13,130
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-24
<PAGE> 72
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
---------------------
1996 1995
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Net cash provided by (used for) operating activities................... $ 40,097 $(10,894)
Investing activities:
Purchases of property and equipment.................................. (17,857) (18,542)
Proceeds from sale of property and equipment......................... 732 103
Payment for business acquired, net of cash acquired.................. 0 (3,116)
Investment........................................................... (3,000) 0
-------- --------
Net cash used for investing activities................................. (20,125) (21,555)
-------- --------
Financing activities:
Borrowings from (repayment) to banks................................. (8,645) 8,225
Source (repayment) of capital lease obligations...................... (4,851) 3,023
Source (repayment) of long-term debt................................. 574 1,947
Repayment of loan from related party................................. 1,381 0
Loan made to related party........................................... (1,938)
Net proceeds from issuance of share capital.......................... 825 22,929
Payment of secondary public offering expenses and
nCHIP financing expenses.......................................... 0 0
Investment...........................................................
Repayment of notes payable........................................... (286) (23)
-------- --------
Net cash provided by (used for) financing activities................... (12,940) 36,101
-------- --------
Net increase in cash................................................... 7,032 3,652
Cash, beginning of period.............................................. 6,546 4,751
-------- --------
Cash, end of period.................................................... $ 13,578 $ 8,403
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-25
<PAGE> 73
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
DECEMBER 31, 1996
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 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 of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the nine month period ended December 31, 1996 are not necessarily
indicative of the results that may be expected for the year ended March 31,
1997. For further information, refer to the consolidated financial statements
and footnotes thereto included elsewhere herein for the year ended March 31,
1996.
NOTE B -- INVENTORIES
The components of inventory consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1996 1996
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
Raw materials................................................ $ 40,610 $42,202
Work-in-process.............................................. 9,573 14,049
Finished goods............................................... 1,028 962
------- -------
$ 51,211 $57,213
Less: Allowance for obsolescence............................. (5,949) (4,576)
------- -------
$ 45,262 $52,637
======= =======
</TABLE>
NOTE C -- ACQUISITION
On 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 of S$0.01 par value
per share 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 did not have a material impact on the consolidated result.
On December 20, 1996, the Company acquired 40% of FICO Investment Holding's
Limited ("FICO") for $5.2 million, of which $3.0 million was paid in December
1996 and the balance is due in April 1997. The Company has an option to purchase
the remaining 60% of FICO in 1998 and the consideration for the remaining 60% is
dependent on the financial performance of FICO for period ending December 31,
1997. FICO produces injection molded plastics for electronics companies with
manufacturing facilities in Shenzhen, China.
F-26
<PAGE> 74
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in or
incorporated by reference 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 by any of the Underwriters. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the dates as of which information is given in this Prospectus. This
Prospectus does not constitute an offer or solicitation by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to any
person to whom it is unlawful to make such solicitation.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Acquisition of Karlskrona
Facilities.......................... 5
The Company........................... 6
Risk Factors.......................... 7
Enforcement of Civil Liabilities...... 14
Use of Proceeds....................... 14
Dividends............................. 14
Price Range of Ordinary Shares........ 15
Capitalization........................ 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 26
Management............................ 35
Principal Shareholders................ 37
Description of Capital Shares......... 39
Taxation.............................. 42
Underwriting.......................... 44
Certain Legal Matters................. 45
Experts............................... 45
Consolidated Financial Statements..... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,750,000 SHARES
[LOGO]
ORDINARY SHARES
-------------------------
PROSPECTUS
-------------------------
MONTGOMERY SECURITIES
COWEN & COMPANY
SALOMON BROTHERS INC
UBS SECURITIES
Dated , 1997
- ---------------------------------------------------
- ---------------------------------------------------
<PAGE> 75
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 jurisdiction in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction.
[SUBSTITUTE PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION FEBRUARY 12, 1997
1,750,000 ORDINARY SHARES
[LOGO]
All of the 1,750,000 Ordinary Shares offered hereby are being sold by
Flextronics International Ltd. ("Flextronics" or the "Company"). Of the
1,750,000 Ordinary Shares offered hereby 437,500 shares initially are being
offered outside the United States and Canada by the International Managers and
1,312,500 shares initially are being offered in a concurrent offering in the
United States and Canada by the U.S. Underwriters. The public offering price and
the underwriting discount per share are identical for both of the offerings. See
"Underwriting."
The Company's Ordinary Shares are quoted on the Nasdaq National Market
under the symbol "FLEXF." On February 11, 1997, the last reported sale price for
the Ordinary Shares was $26 1/4 per share. See "Price Range of Ordinary Shares."
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE ORDINARY SHARES
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.
<TABLE>
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount(1) Company(2)
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------
Per Share...................... $ $ $
Total(3)....................... $ $ $
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for information concerning indemnification of the
International Managers and the U.S. Underwriters and other matters.
(2) Before deducting expenses payable by the Company estimated at $360,000.
(3) The Company has granted to the International Managers and the U.S.
Underwriters 30-day options to purchase up to 65,625 and 196,875 additional
Ordinary Shares, respectively, in each case solely to cover over-allotments,
if any. If these options are exercised in full, the Price to Public will
total $ , the Underwriting Discount will total $ , and
the Proceeds to Company will total $ .
The Ordinary Shares are offered by the International Managers and the U.S.
Underwriters subject to receipt and acceptance by them and subject to their
right to reject any order in whole or in part. It is expected that delivery of
the certificates representing such shares will be made against payment therefor
at the office of Montgomery Securities on or about , 1997.
------------------------
UBS LIMITED
MONTGOMERY SECURITIES
COWEN & COMPANY
SALOMON BROTHERS INTERNATIONAL LIMITED
The date of this Prospectus is , 1997.
<PAGE> 76
[SUBSTITUTE PAGE FOR INTERNATIONAL PROSPECTUS]
UNDERWRITING
The underwriters named below (the "International Managers") have severally
agreed, subject to the terms and conditions in the underwriting agreement (the
"International Underwriting Agreement") by and among the Company and the
International Managers, to purchase from the Company the number of Ordinary
Shares indicated below opposite their respective names, at the public offering
price less the underwriting discount set forth on the cover page of this
Prospectus. The International Underwriting Agreement provides that the
obligations of the International Managers are subject to certain conditions
precedent and that the International Managers are committed to purchase all of
the Ordinary Shares offered hereby (other than those covered by the
International Managers' over-allotment option described below) if they purchase
any.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
UBS Limited...............................................................
Montgomery Securities.....................................................
Cowen & Company...........................................................
Salomon Brothers International Limited....................................
---------
Total........................................................... 437,500
=========
</TABLE>
The Company also has entered into an underwriting agreement (the "U.S.
Underwriting Agreement") with certain underwriters in the United States and
Canada (the "U.S. Underwriters" and, together with the International Managers,
the "Underwriters"). Subject to the terms and conditions set forth in the U.S.
Underwriting Agreement, and concurrently with the sale of 437,500 Ordinary
Shares to the International Managers, the Company has agreed to sell to the U.S.
Underwriters, and the U.S. Underwriters severally have agreed to purchase, an
aggregate of 1,312,500 Ordinary Shares. The offering price per share and the
total underwriting discount per share are identical under the International
Underwriting Agreement and the U.S. Underwriting Agreement.
In the International Underwriting Agreement and the U.S. Underwriting
Agreement, the International Managers and the U.S. Underwriters, respectively,
have agreed, subject to the terms and conditions set forth therein, to purchase
all of the Ordinary Shares being sold pursuant to each such Agreement if any of
the Ordinary Shares being sold pursuant to each such Agreement are purchased.
Under certain circumstances, the commitments of non-defaulting International
Managers or U.S. Underwriters may be increased. The purchases of Ordinary Shares
by the International Managers and the U.S. Underwriters are conditioned upon one
another.
The International Managers propose initially to offer the shares to the
public at the public offering price set forth on the cover page of this
Prospectus, and to certain banks, brokers and dealers (the "Selling Group") at
such price less a concession not in excess of per share, and the
International Managers may allow, and the members of the Selling Group may
reallow, with the consent of Montgomery Securities, a discount not in excess of
$ per share to other International Managers or to other members of the
Selling Group. After the public offering, the public offering price, concession
and discount may be changed.
The Company has granted to the International Managers an over-allotment
option, exercisable during the 30-day period after the date of this Prospectus,
to purchase up to 65,625 additional Ordinary Shares at the same price per share
as the initial shares to be purchased by the International Managers. The
International Managers may exercise such option only to cover over-allotments
made in the sale of the Ordinary Shares that the International Managers have
agreed to purchase. To the extent the International Managers exercise such
option, each International Manager will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Company has also granted an
option to the U.S. Underwriters, exercisable during the 30-day period after the
date of this Prospectus, to purchase up to an aggregate of 196,875 additional
Ordinary Shares to cover over-allotments, if any, on terms similar to those
granted to the U.S. Underwriters.
The International Managers and the U.S. Underwriters have entered into an
Intersyndicate Agreement (the "Intersyndicate Agreement") that provides for the
coordination of their activities. Pursuant to the
X-2
<PAGE> 77
[SUBSTITUTE PAGE FOR INTERNATIONAL PROSPECTUS]
Intersyndicate Agreement, sales may be made between the International Managers
and the U.S. Underwriters of such number of Ordinary Shares as may be mutually
agreed. The prices of any Ordinary Shares so sold shall be the public offering
price, less an amount not greater than the selling concession.
Under the terms of the Intersyndicate Agreement, the U.S. Underwriters and
any dealer to whom they sell Ordinary Shares will not offer to sell or sell
Ordinary Shares to persons who are non-United States or Canadian persons or to
persons they believe intend to resell to persons who are non-United States or
Canadian persons, and the International Managers and any dealer to whom they
sell Ordinary Shares will not offer to sell or sell Ordinary Shares to United
States or Canadian persons or to persons they believe intend to resell to United
States or Canadian persons, except, in each case, for transactions pursuant to
the Intersyndicate Agreement.
The International Underwriting Agreement provides that the Company will
indemnify the International Managers against certain liabilities, including
civil liabilities under the Securities Act, or will contribute to payments the
International Managers may be required to make in respect thereof.
The Company has agreed, following completion of this offering, not to
issue, offer, sell, contract to sell or otherwise dispose of any Ordinary Shares
or securities convertible into or exchangeable or exercisable for Ordinary
Shares without the prior written consent of Montgomery Securities for a period
of 90 days after the date of this Prospectus, except that the Company may,
without such consent, (i) grant options pursuant to its existing employee
benefit plans or issue Ordinary Shares upon exercise of outstanding stock
options, and (ii) issue Ordinary Shares in connection with acquisitions. The
officers and directors of the Company have agreed that they will not sell more
than an aggregate of 85,000 Ordinary Shares without the prior written consent of
Montgomery Securities for a period of 90 days after the date of this Prospectus.
Each International Manager has agreed that (i) it has not offered or sold,
and will not offer or sell, directly or indirectly, any Ordinary Shares offered
hereby in the United Kingdom by means of any document except in circumstances
which do not constitute an offer to the public for the purposes of the Public
Offers of Securities Regulations 1995, (ii) it has complied and will comply with
all applicable provisions of the Public Offers of Securities Regulations 1995
and the Financial Services Act 1986 with respect to anything done by it in
relation to the Ordinary Shares in, from or otherwise involving the United
Kingdom, and (iii) it has only issued or passed on and will only issue or pass
on to any person in the United Kingdom any document received by it in connection
with the issuance of Ordinary Shares if that person is of a kind who falls
within Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements)(Exemptions) Order 1996.
In connection with this offering, certain U.S. Underwriters and selling
group members may engage in passive market making transactions in the Ordinary
Shares on the Nasdaq National Market immediately prior to the commencement of
sales in this offering, in accordance with Rule 10b-6A under the Exchange Act.
Passive market making consists of displaying bids on the Nasdaq National Market
that are limited by the bid prices of independent market makers and completing
purchases in response to order flow at prices limited by such bids. Net
purchases by a passive market maker on each day are limited to a specified
percentage of the passive market maker's average daily trading volume in the
Ordinary Shares during a specified period and must be discontinued for any day
in which such limit is reached. Passive market making may stabilize the market
price of the Ordinary Shares at a level above that which might otherwise prevail
and, if commenced, may be discontinued at any time.
CERTAIN LEGAL MATTERS
The validity of the Ordinary Shares offered hereby will be passed upon on
behalf of the Company by Allen & Gledhill, Singapore, legal advisors to the
Company, and on behalf of the Underwriters by Arfat Selvam & Gunasingham,
Singapore legal advisors to the Underwriters. Certain United States legal
matters in connection with this offering will be passed upon for the Company by
Fenwick & West LLP and for the Underwriters by Howard, Rice, Nemerovski, Canady,
Falk & Rabkin, a Professional Corporation.
X-3
<PAGE> 78
[SUBSTITUTE PAGE FOR INTERNATIONAL PROSPECTUS]
EXPERTS
The consolidated financial statements and schedules of Flextronics at March
31, 1994, 1995 and 1996 and for each of the three years in the period ended
March 31, 1996 included in this Prospectus and Registration Statement have been
audited by Ernst & Young, independent auditors, as set forth in their report
thereon included herein and in the Registration Statement, and are included in
reliance upon such report given upon the authority of such Firm as experts in
accounting and auditing.
The financial statements and schedules of Astron at December 31, 1995 and
for each of the two years in the period ended December 31, 1995 incorporated by
reference into this Prospectus and Registration Statement have been audited by
Deloitte Touche Tomatsu International, independent auditors, as set forth in
their report thereon incorporated by reference herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
The financial statements and schedules of A&A as of June 30, 1993 and 1994
and for each of the two years in the period ended June 30, 1993 and for the
eighteen month period ended December 31, 1994 incorporated by reference in this
Prospectus have been audited by Coopers & Lybrand, independent auditors, as set
forth in their report thereon, and are incorporated by reference in reliance
upon such report given upon the authority of such firm as experts in accounting
and auditing.
X-4
<PAGE> 79
[SUBSTITUTE PAGE FOR INTERNATIONAL PROSPECTUS]
- ------------------------------------------------------
- ------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representations other than those contained in or
incorporated by reference 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 by any of the Underwriters. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company
since the dates as of which information is given in this Prospectus. This
Prospectus does not constitute an offer or solicitation by anyone in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so or to any
person to whom it is unlawful to make such solicitation.
----------------------------
TABLE OF CONTENTS
----------------------------
<TABLE>
<CAPTION>
Page
<S> <C>
Available Information................. 2
Incorporation of Certain Documents by
Reference........................... 2
Prospectus Summary.................... 3
Acquisition of Karlskrona
Facilities.......................... 5
The Company........................... 6
Risk Factors.......................... 7
Enforcement of Civil Liabilities...... 14
Use of Proceeds....................... 14
Dividends............................. 14
Price Range of Ordinary Shares........ 15
Capitalization........................ 16
Selected Financial Data............... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 18
Business.............................. 26
Management............................ 35
Principal Shareholders................ 37
Description of Capital Shares......... 39
Taxation.............................. 42
Underwriting.......................... 44
Certain Legal Matters................. 45
Experts............................... 45
Consolidated Financial Statements..... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,750,000 SHARES
[LOGO]
ORDINARY SHARES
-------------------------
PROSPECTUS
-------------------------
UBS LIMITED
MONTGOMERY SECURITIES
COWEN & COMPANY
SALOMON BROTHERS
INTERNATIONAL LIMITED
Dated , 1997
- ---------------------------------------------------
- ---------------------------------------------------
X-5
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses to be paid by the
Registrant in connection with the sale of the Ordinary Shares being registered.
All amounts are estimates except for the Securities and Exchange Commission
registration fee, the NASD filing fee and the Nasdaq National Market filing fee.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee....................... $ 16,085
NASD filing fee........................................................... 5,808
Nasdaq National Market filing fee......................................... 17,500
Accounting fees and expenses.............................................. 35,000
Legal fees and expenses................................................... 200,000
Printing.................................................................. 75,000
Blue sky fees and expenses................................................ 10,000
Miscellaneous............................................................. 607
-----
Total........................................................... $360,000
=====
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
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.
II-1
<PAGE> 81
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ------------------------------------------------------------------------------------
<C> <S>
1.1 Form of U.S. Underwriting Agreement*.
1.2 Form of International Underwriting Agreement*.
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 supplementally 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.
33-85842.)
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.
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.)
5.1 Opinion and Consent of Allen & Gledhill with respect to the Ordinary Shares being
registered*.
11.1 Statement regarding computation of per share earnings.*
23.1 Consent of Ernst & Young.
23.2 Consent of Allen & Gledhill (included in Exhibit 5.1).
23.3 Consent of Deloitte Touche Tomatsu International.*
23.4 Consent of Coopers & Lybrand.
24.1 Power of Attorney (included in the signature page of this Registration Statement).
</TABLE>
- ---------------
*To be filed by amendment.
II-2
<PAGE> 82
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement 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-3
<PAGE> 83
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized in the City of San Jose, State of California, on February 12, 1997.
FLEXTRONICS INTERNATIONAL LTD.
By: /s/ MICHAEL E. MARKS
------------------------------------
Michael E. Marks
Chairman of the Board of Directors
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints jointly and severally, Michael E. Marks
and Goh Chan Peng and each one of them, his attorneys-in-fact, each with the
power of substitution, for him in any and all capacities, to sign any and all
amendments to this registration statement (including any and all amendments,
including post-effective amendments), and to file the same, with exhibits
thereto and other documents in connection therewith, with the Securities and
Exchange Commission, hereby ratifying and confirming all that each of said
attorneys-in-fact, or his substitutes, may do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Securities Act of 1933, this
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 February 12, 1997
- ------------------------------------------ Chief Executive Officer
Michael E. Marks (principal executive officer)
/s/ TSUI SUNG LAM President, Chief Operating February 12, 1997
- ------------------------------------------ Officer and Director
Tsui Sung Lam
/s/ GOH CHAN PENG Chief Financial Officer February 12, 1997
- ------------------------------------------ (principal financial and
Goh Chan Peng accounting officer)
/s/ ROBERT R.B. DYKES Director February 12, 1997
- ------------------------------------------
Robert R.B. Dykes
/s/ BERNARD J. LACROUTE Director February 12, 1997
- ------------------------------------------
Bernard J. Lacroute
/s/ MICHAEL J. MORITZ Director February 12, 1997
- ------------------------------------------
Michael J. Moritz
/s/ STEPHEN J.L. REES Chairman, Astron Group Limited February 12, 1997
- ------------------------------------------ Director
Stephen J.L. Rees
/s/ RICHARD L. SHARP Director February 12, 1997
- ------------------------------------------
Richard L. Sharp
</TABLE>
II-4
<PAGE> 84
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DOCUMENT DESCRIPTION PAGE
- ------ -------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1 Form of U.S. Underwriting Agreement*.
1.2 Form of International Underwriting Agreement*.
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 supplementally 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. 33-85842.)
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.
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.)
5.1 Opinion and Consent of Allen & Gledhill with respect to the Ordinary
Shares being registered*.
11.1 Statement regarding computation of per share earnings.*
23.1 Consent of Ernst & Young.
23.2 Consent of Allen & Gledhill (included in Exhibit 5.1).
23.3 Consent of Deloitte Touche Tomatsu International.*
23.4 Consent of Coopers & Lybrand.
24.1 Power of Attorney (included in the signature page of this Registration
Statement).
</TABLE>
- ---------------
*To be filed by amendment.
<PAGE> 1
EXHIBIT 2.6
ASSET TRANSFER AGREEMENT
between
ERICSSON BUSINESS NETWORKS AB
and
FLEXTRONICS INTERNATIONAL SWEDEN AB
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
1. PURCHASE AND SALE....................................................................................... 9
1.1 AGREEMENT TO SELL AND PURCHASE...................................................................... 9
1.1.1 Included Assets................................................................................ 9
1.1.2 Excluded Assets............................................................................... 10
1.2 THE PURCHASE PRICE ETC............................................................................. 11
1.2.1 Purchase Price................................................................................ 11
1.2.2 Payment of Purchase Price..................................................................... 11
1.3 ASSUMPTION OF LIABILITIES.......................................................................... 12
1.4 INTERIM AND CLOSING ASSET LISTS; ADJUSTMENT DATE................................................... 12
1.4.1 Interim Asset List............................................................................ 12
1.4.2 Closing Asset List............................................................................ 12
1.4.3 Final Closing Asset List...................................................................... 13
1.4.4 The Adjustment Date........................................................................... 13
1.5 EMPLOYEES.......................................................................................... 13
2. CLOSING; ITEMS TO BE DELIVERED AT CLOSING.............................................................. 13
2.1 CLOSING............................................................................................ 13
2.2 TRANSFER OF TITLE AND POSSESSION; ITEMS TO BE DELIVERED AT CLOSING................................. 14
2.2.1 Transfer of title and possession.............................................................. 14
2.2.2 Items to be delivered at Closing.............................................................. 14
2.2.3 Actions for Completion........................................................................ 15
2.3 THIRD PARTY CONSENT................................................................................ 15
3. REPRESENTATIONS AND WARRANTIES......................................................................... 15
3.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER....................................................... 15
3.1.1 Due Diligence................................................................................. 15
3.1.2 Due Organization.............................................................................. 15
3.1.3 Authority..................................................................................... 16
3.1.4 Assets........................................................................................ 16
3.1.5 Inventory and work orders..................................................................... 16
3.1.6 Employees..................................................................................... 16
3.1.7 Effect of Agreement........................................................................... 17
</TABLE>
<PAGE> 3
2
<TABLE>
<S> <C>
3.1.8 Absence of Change............................................................................. 17
3.1.9 Title to Assets............................................................................... 17
3.1.10 Leased and Licensed Property and Assets...................................................... 18
3.1.11 Proprietary Rights........................................................................... 18
3.1.12 Agreements, Etc.............................................................................. 18
3.1.13 Employees and Employee Plans................................................................. 18
3.1.14 Environmental and Safety Matters............................................................. 19
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.................................................... 19
3.2.1 Due Organization.............................................................................. 19
3.2.2 Authority..................................................................................... 19
3.2.3 Plans for implementation and secure sourcing.................................................. 19
4. AGREEMENTS PENDING CLOSING/COVENANTS................................................................... 20
4.1 AGREEMENTS/COVENANTS OF SELLER PENDING THE CLOSING................................................. 20
4.1.1 Actions of Seller............................................................................ 20
4.1.2 Operations in the Ordinary Courses............................................................ 20
4.1.3 Maintenance of Physical Assets................................................................ 20
4.1.4 Employees and Business Relations.............................................................. 20
4.1.5 Maintenance of Insurances..................................................................... 20
4.1.6 Compliance with Laws etc...................................................................... 20
4.1.7 Sale of Assets; Negotiations.................................................................. 21
4.1.8 Access........................................................................................ 21
4.1.9 Press releases................................................................................ 21
4.1.10 Competition Authorities...................................................................... 21
4.1.11 Information Systems.......................................................................... 21
4.2 AGREEMENTS OF PURCHASER PENDING THE CLOSING........................................................ 21
4.2.1 Actions of Purchaser.......................................................................... 21
4.2.2 Confidentiality............................................................................... 22
4.2.3 Press Releases................................................................................ 22
4.2.4 Competition Authorities....................................................................... 22
4.2.5 Information Systems .......................................................................... 22
5. CONDITIONS PRECEDENT TO THE CLOSING.................................................................... 22
5.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER............................................... 22
5.1.1 Compliance with this Agreement................................................................ 22
5.1.2 Material Adverse Changes...................................................................... 23
</TABLE>
<PAGE> 4
3
<TABLE>
<S> <C>
5.1.3 Information Systems........................................................................... 23
5.1.4 Competition Authorities....................................................................... 23
5.1.5 Representations and Warranties................................................................ 23
5.1.6 Legal opinion ................................................................................ 23
5.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER................................................... 23
5.2.1 Compliance with this Agreement................................................................ 24
5.2.2 Implementation Plan........................................................................... 24
5.2.3 Lease Agreement, Service Agreement............................................................ 24
5.2.4 Information System............................................................................ 24
5.2.5 Competition Authorities....................................................................... 24
5.2.6 Representations and Warranties................................................................ 25
5.2.7 Legal Opinion ................................................................................ 25
6. INDEMNIFICATION........................................................................................ 25
6.1 GENERAL INDEMNIFICATION OBLIGATION OF THE SELLER................................................... 25
6.2 GENERAL INDEMNIFICATION OBLIGATION OF PURCHASER.................................................... 25
6.3 METHOD OF ASSERTING CLAIMS, ETC.................................................................... 26
6.4 OTHER RIGHTS AND REMEDIES.......................................................................... 26
6.5 LIMITATION OF LIABILITY............................................................................ 26
6.6 TAX CONSEQUENCES................................................................................... 26
6.7 MITIGATION OF LOSSES............................................................................... 26
6.8 REDUCTION OF INDEMNITY............................................................................. 26
7. POST CLOSING MATTERS................................................................................... 27
7.1 DISCHARGE OF OBLIGATIONS........................................................................... 27
7.2 PAYMENTS AND OTHER PROPERTY RECEIVED............................................................... 27
7.3 IS/IT.............................................................................................. 27
7.4 VEDEBY PLANT....................................................................................... 28
7.5 INVENTORY.......................................................................................... 28
7.6 THIRD PARTY CONSENTS............................................................................... 28
7.7 ACTIONS FOR THE COMPLETION OF THE TRANSFER......................................................... 29
7.8 NEW EMPLOYMENT AND EMPLOYMENT CONDITIONS........................................................... 29
</TABLE>
<PAGE> 5
4
<TABLE>
<S> <C>
7.8.1 Transfer of Employees......................................................................... 29
7.8.2 Reimbursement for Compensation to Certain Employees........................................... 29
7.8.3 Loans to employees............................................................................ 30
7.9 COMPENSATION FOR DEFECTS IN REAL PROPERTY.......................................................... 30
7.10 CONFIDENTIALITY OF SELLER......................................................................... 30
7.11 CONFIDENTIALITY OF PURCHASER...................................................................... 30
8. MISCELLANEOUS.......................................................................................... 31
8.1 EXPENSES........................................................................................... 31
8.2 ENTIRE AGREEMENT................................................................................... 31
8.3 ASSIGNMENT......................................................................................... 31
8.4 NOTICES............................................................................................ 31
8.5 EXHIBITS........................................................................................... 32
8.6 SEVERABILITY....................................................................................... 32
9. GOVERNING LAW AND ARBITRATION.......................................................................... 32
9.1 GOVERNING LAW...................................................................................... 32
9.2 ARBITRATION........................................................................................ 32
10. ENTERING INTO FORCE................................................................................... 32
</TABLE>
<PAGE> 6
5
ASSET TRANSFER AGREEMENT
Dated as of February 12, 1997, by and between
Ericsson Business Networks AB, a company duly incorporated and existing under
the laws of Sweden ("Seller"), and
Flextronics International Sweden AB, a company duly incorporated and existing
under the laws of Sweden ("Purchaser"), with reference to the following
recitals:
A. Seller is engaged, in part, in the manufacturing of complete integrated
information networks for voice, data and multimedia in wired and mobile
applications. Seller has carried on such manufacturing, referred to
herein as the "Manufacturing Operations" using certain assets in
Seller's premises in Vedeby and Verko in Karlskrona.
B. Purchaser, owned via Flextronics Holding AB by Flextronics
International Ltd., a company which is engaged in the business of
electronics manufacturing, materials procurement, printed circuit board
design, logistics and other manufacturing services, desires to purchase
all of the above described assets used in the Manufacturing Operations
of Seller except for order administration, core unit supply and
distribution.
C. Subject only to the limitation and exclusions contained in this
Agreement and on the terms and conditions hereinafter set forth, Seller
desires to sell and Purchaser desires to purchase the manufacturing
assets of Seller.. Purchaser intends to use the assets for production
for Seller and a wide range of third party customers.
NOW THEREFORE, in consideration of the recitals and of the respective
covenants, representations, warranties and agreements herein contained,
and intending to be legally bound hereby, the parties hereto hereby
agree as follows:
<PAGE> 7
6
D. DEFINITIONS
ADJUSTMENT DATE means the date set out in Section 1.4.4.
AGREEMENT means this agreement.
ASSETS means the assets set out in Section 1.1.1.
ASSUMED LIABILITIES means the liabilities to be assumed by Purchaser
as set out in Section 1.3.
CLOSING ASSET LIST means the asset list prepared in accordance with
Section 1.4.2.
CLOSING DATE means the date set out in Section 2.1.
CLOSING PAYMENT means the payment on account of the Purchase Price
which is to be paid on the Closing Date as set out
in Section 1.2.2.
EMPLOYEES means the employees listed in Exhibit 1.5.
EXCLUDED ASSETS means the assets set out in Section 1.1.2 which
assets shall not be transferred to Purchaser.
FINAL CLOSING ASSET LIST means the asset list set out in Section 1.4.3.
INFORMATION SYSTEMS
SERVICES AGREEMENT means the agreement which is to be entered into in
accordance with the principles set out in Exhibit
5.1.5(b).
IMPLEMENTATION PLAN means the plan attached hereto as Exhibit 5.2.3.
INTERIM ASSET LIST means the statement of the Assets and the Assumed
Liabilities as set out in Exhibit 1.4.1.
MANUFACTURING
OPERATIONS means the operations set out in Recital
PURCHASE PRICE means the consideration for the Assets as set out
in Section 1.2.1.
POST CLOSING
INFORMATION
<PAGE> 8
7
SYSTEM PLAN means the plan attached hereto as Exhibit 7.3.
PURCHASER means Flextronics International Sweden AB.
SELLER means Ericsson Business Networks AB.
1. PURCHASE AND SALE
1.1 AGREEMENT TO SELL AND PURCHASE
At the Closing Date hereunder (as defined in Section 2.1 hereof) and
except as otherwise specifically provided in this Section 1.1, Seller
shall sell, transfer, assign and deliver to Purchaser (or as regards
real property listed below and the construction contract dated November
20, 1992 listed in Exhibit 1.1. (e), cause such actions) and Purchaser
shall purchase, assume and receive from Seller, upon and subject to the
terms and conditions of this Agreement all of the Assets used in the
Manufacturing Operations, as set out in Section 1.1.1, free and clear
of all mortgages, liens, pledges and other security interests (save as
explicitly set out herein).
1.1.1 Included Assets
The assets to be transferred shall include the following except as set
forth in Section 1.1.2 hereof (hereinafter referred to as the
"Assets"):
(a) the real property listed in EXHIBIT 1.1.1(a);
(b) all inventories, machinery and equipment and other tangible
assets as set out in EXHIBIT 1.1.1(b);
(c) the prepaid items, unbilled costs and fees, listed in EXHIBIT
1.1.1(c);
(d) expensed equipment and fully depreciated machinery and
equipment as set out in EXHIBIT 1.1.1(d);
(e) all rights and obligations under any agreement, permit,
approval or authorization, etc., pertaining solely to the
Manufacturing Operations and listed in EXHIBIT 1.1.1(e);
(f) all orders as set out in EXHIBIT1.1.1 (f);
(g) the computer software (including documentation and related
object and source codes) listed in EXHIBIT 1.1.1(g) and ;
<PAGE> 9
8
(h) all information, files, records and recorded knowledge,
pertaining to the Manufacturing Operations and listed in
EXHIBIT 1.1.1(h).
Taking into consideration changes occurring in the ordinary course of
business, the exhibits referred to above may be amended as of Closing
Date but such amendments will be accounted for on the Closing Asset
List or in a particular statement submitted to Purchaser on Closing
Date.
1.1.2 Excluded Assets
Notwithstanding the foregoing, the Assets shall not include any of the
following (the "Excluded Assets"):
(a) any assets, properties or rights of Seller used in order
administration, core unit supply and distribution as further
described in EXHIBIT 1.1.2 (a);
(b) the specific tools listed in EXHIBIT 1.1.2(b);
(c) all computer software including documentation and related
object and source codes other than listed in EXHIBIT 1.1.1(g)
such as, without limiting the aforesaid, the software set out
in EXHIBIT 1.1.2 (c);
(d) all rights under any patent, trademark, service mark, trade
name or copyright, whether registered or unregistered, and any
applications therefore, including, but not limited to, the
rights listed in EXHIBIT 1.1.2 (d);
(e) all technologies, technical designs or solutions, methods,
formulations, data bases, trade secrets, know-how, inventions,
production techniques, operating rights and other intellectual
property used in the Manufacturing Operations or under
development, including, but not limited to, the rights listed
in EXHIBIT 1.1.2 (e);
(f) the inventory listed in EXHIBIT 1.1.2(f);
(g) market distribution systems, sales force and customer base, or
(h) other assets, properties or rights set forth in EXHIBIT
1.1.2(g).
<PAGE> 10
9
1.2 THE PURCHASE PRICE ETC.
1.2.1 Purchase Price
The purchase price ("Purchase Price") shall be the aggregate of:
(a) book values in Seller's records as at Closing Date for
inventories, machinery, equipment, other tangible assets set
out in Exhibit 1.1.1 (b) and prepaid items as referred to in
Section 1.1.1 (c);
(b) SEK twenty six million five hundred thousand (26,500,000) for
expensed equipment and fully depreciated machinery and
equipment;
(c) book values for the Vedeby and Verko plant as at Closing Date;
(d) SEK five million (5,000,000) (contribution to Seller's
restructuring costs); and
(e) less any book values of Assumed Liabilities.
The book values shall be as reflected on the Final Closing Asset List.
All sums referred to above are excluding any Value Added Tax, stamp or
transfer taxes and similar taxes, fees or charges.
1.2.2 Payment of Purchase Price
On the Closing Date Purchaser shall pay to Seller on account of the
Purchase Price (the "Closing Payment"), either a sum to be agreed upon
in writing by the parties prior to the Closing Date, or if such sum
cannot be agreed upon, the amount of SEK seven hundred eighty five
million one hundred thousand five hundred nine (785,100,509) , which
sum has been calculated as follows:
(a) Seller's book values (including reserves) for inventories,
machinery, equipment, other tangible assets set out in Exhibit
1.1.1 (b) and prepaid items as referred to in Section 1.1.1
(c), all as reflected on the Interim Asset List;
(b) SEK twenty six million five hundred thousand (26,500,000);
(c) Seller's book values for the Vedeby and Verko plant as
reflected on the Interim Asset List ;
(d) SEK five million (5,000,000); and
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(e) less the book values of Assumed Liabilities as reflected on
the Interim Asset List.
The Closing Payment shall be payable by wire transfer of immediately
available funds to such account as Seller shall designate.
If the Purchase Price exceeds the Closing Payment, Purchaser shall pay
such excess within seven days after the Adjustment Date as defined in
Section 1.4 hereof by wire transfer of immediately available funds to
such account as Seller shall designate. If the Closing Payment exceeds
the Purchase Price, Seller shall pay such excess within seven days
after the Adjustment Date, by wire transfer of immediately available
funds to such account as Purchaser shall designate.
1.3 ASSUMPTION OF LIABILITIES
At the Closing Date hereunder Purchaser shall assume and agree to pay,
discharge or perform, as appropriate, the following liabilities and
obligations of Seller (the "Assumed Liabilities") arising in respect of
the Manufacturing Operations and which are set out in EXHIBIT 1.3(A),
to the extent that the same remain unpaid and undischarged on the
Closing Date and are reflected on the Final Closing Asset List.
1.4 INTERIM AND CLOSING ASSET LISTS; ADJUSTMENT DATE
1.4.1 Interim Asset List
As a basis for the Closing Payment, Seller has prepared a statement of
the Assets and the Assumed Liabilities as of the dates referred to in
said statement, EXHIBIT 1.4.1 (the "Interim Asset List").
1.4.2 Closing Asset List
No later than 45 days after the Closing Date, Seller shall prepare the
Closing Asset List as at the Closing Date in accordance with:
(i) the particular principles set out in EXHIBIT 1.4.2;
(ii) the particular principles and techniques used by Seller prior
to Closing Date; and
(iii) Swedish Generally Accepted Accounting principles and the
principles in the Swedish Accounting Act.
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If the principles referred to above are not consistent with each other,
the principles shall prevail in the order listed.
Any dispute which may arise between Seller and Purchaser as to such
Closing Asset List and the proper amount of the Purchase Price shall be
resolved in the following manner:
(a) Purchaser shall notify Seller in writing within 30 days after
the receipt of the Closing Asset List, such notice shall
specify in reasonable detail Purchaser's objections and the,
in Purchaser's view, correct amount of the Purchase Price;
(b) during the 30 day period following the date of such notice,
Seller and Purchaser shall attempt to resolve such dispute and
to determine the appropriateness of the Closing Asset List and
the Purchase Price; and
(c) if at the end of the 30 day period specified in subsection (b)
above, Seller and Purchaser have not solved the dispute, the
matter shall be referred to arbitration in accordance with
Section 9.
Any objection to Closing Asset List made by Purchaser shall only be
allowed to the extent the aggregate amount of such objections is in
excess of SEK one million five hundred thousand (1,500,000).
1.4.3 Final Closing Asset List
If not disputed, the Closing Asset List shall become final ("the Final
Closing Asset List") on the expiry of the above period during which
Purchaser may raise objections. Otherwise, the Final Closing Asset List
shall be as agreed between the parties or, if no agreement is reached,
as resolved by arbitration.
1.4.4 The Adjustment Date
The Adjustment Date shall be the later of the 46th day after delivery
to Purchaser of the Closing Asset List, or the fifth day after the day
upon which any dispute concerning the amount of the Purchase Price
finally is resolved either by agreement or by arbitration.
1.5 EMPLOYEES
The employees listed in EXHIBIT 1.5 (the "Employees") are currently
employed in the Manufacturing Operations. Under Section 6 b of the
Employment Security Act (lagen om anstallningsskydd), these employees
are (by operation of law) automatically transferred to Purchaser on
Closing Date.
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2. CLOSING; ITEMS TO BE DELIVERED AT CLOSING
2.1 CLOSING
The Closing of the sale and purchase of the Assets shall take place in
the offices of Seller in Nacka Strand on March 27, 1997 or, if later,
on the first working day of the month immediately following the month
during which all the conditions precedent have been fulfilled or
waived, or such other date or place as may be mutually agreed upon in
writing by Purchaser and Seller (the "Closing Date").
In the event the Closing has not occurred on May 2, 1997, either party
shall have the right to terminate this Agreement by giving the other
party written notice of such effect and in such case the provisions in
the event of a termination of negotiations included in the letter of
intent dated November 15, 1996 between the parties shall apply.
2.2 TRANSFER OF TITLE AND POSSESSION; ITEMS TO BE DELIVERED AT CLOSING
2.2.1 Transfer of title and possession
Title, possession and risk of loss or damage to the Assets shall pass
and transfer from the Seller to the Purchaser at 24.00 hours on the
Closing Date.
2.2.2 Items to be delivered at Closing
At the Closing and subject to the terms and conditions herein
contained:
(a) Seller shall deliver to Purchaser or otherwise let Purchaser
take possession of the following:
(i) bills of sale (Sw: Kopebrev) as regards the Vedeby
and Verko plants executed by the owners of the
respective real properties, and such other transfer
notices or documents, in form reasonably satisfactory
to Purchaser, as shall be necessary to transfer and
assign to Purchaser all of the Assets and as regards
the Vedeby plant, mortgage certificates (Sw.
pantbrev);
(ii) all of the agreements included in the Assets;
(iii) certificate signed by Seller confirming the
completion or waiver of all Seller's conditions
precedent as of Closing Date;
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(iv) a written account for any changes in the assets
between signing hereof and Closing Date which will
not be reflected on the Closing Asset List;
(v) a legal opinion substantially as set forth in EXHIBIT
2.2.2 (a) and reasonably acceptable to Purchaser; and
(vi) the original of a letter from the municipality of
Karlskrona regarding an offer to purchase land.
(b) Purchaser shall deliver to Seller the following:
(i) the Closing Payment;
(ii) certificate signed by Purchaser confirming the
completion of all Purchaser's conditions precedent as
of Closing Date;
(iii) legal opinion substantially as set forth in EXHIBIT
2.2.2 (b) and reasonably acceptable to Seller
(iv) bills of sale (Sw: "Kopebrev") as regards the Vedeby
and Verko plants provided by Seller in accordance
with 2.2.2 (a) (i) above but executed by Purchaser;
and
2.2.3 Actions for Completion
In connection with the Closing, all such reasonable steps will be taken
by Seller upon Purchaser's request to put Purchaser in actual
possession and operating control of the Assets.
2.3 THIRD PARTY CONSENT
To the extent that Seller's rights or obligations under any agreement
or commitment or other Asset to be assigned to Purchaser hereunder may
not be assigned without the consent of another person which has not
been obtained, this Agreement shall not constitute an agreement to
assign the same if an attempted assignment would constitute a breach
thereof or be unlawful, but the parties shall proceed as set out in
Section 7.6 to obtain such consent.
3. REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE SELLER
3.1.1 Due Diligence
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Purchaser has been given the opportunity to perform due diligence as
Purchaser finds appropriate and acknowledges that it must rely on its
due diligence as regards the Assets and the Employees.
3.1.2 Due Organization
The Seller is a company duly organized, validly existing, and in good
standing under the laws of Sweden.
3.1.3 Authority
The Seller has full right, power and authority, without the consent of
any other person, to execute and deliver this Agreement and to carry
out the transaction contemplated hereby. All corporate acts or
proceedings required to be taken by the Seller to authorize the
execution, delivery and performance of this Agreement and all
transactions contemplated hereby, have been duly and properly taken.
3.1.4 Assets
The Seller hereby represents and warrants to Purchaser that the Assets
and the Assumed Liabilities shall be transferred "as is". Buyer hereby
acknowledges that Seller has made no express or implied representations
to Buyer regarding the Assets or Assumed Liabilities, including, but
not limited to, the condition of the Assets and the validity or
enforceability of the contracts transferred save as expressly set out
below. Without limiting the aforesaid, Purchaser is in particular aware
of the fact that there are some defects in the real property, described
in EXHIBIT 3.1.4 for which Purchaser shall have no right whatsoever to
claim compensation for from Seller.
3.1.5 Inventory and work orders
The inventory included in the Assets does not contain products and
materials which in Seller's best judgment are not projected to be used
in the manufacturing of products for Seller during the two-year period
following Closing Date.
At Closing Date the stock of work orders will not contain any work
orders submitted more than eight weeks prior to such Closing Date.
3.1.6 Employees
The names, ages, date of commencement of employment and annual salaries
of the Employees are stated in EXHIBIT 3.1.6. In said exhibit, a
description is also
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enclosed on the employees' pension rights and other employment
benefits. In addition to these benefits, there are no other employment
benefits save for customary benefits.
Seller has fulfilled its obligations to negotiate under the Swedish Act
on Co-determination (Sw: lagen om medbestammande i arbetslivet).
3.1.7 Effect of Agreement
The execution, delivery and performance of this Agreement by Seller and
the consummation of the transactions contemplated hereby do not and
will not: (a) violate or result in the breach of any of the terms or
conditions of, or give rise to acceleration of any monies due under,
any agreements or other instrument or obligation to which Seller is a
party and which is being assigned hereunder or by which any of the
Assets may be bound or affected; (b) except as provided for in this
Agreement and associated agreements, result in the creation or
imposition of any lien, security interest, charge, encumbrance,
restriction or right, including rights of termination or cancellation
in or with respect to, or otherwise adversely affect, any of the
Assets; or (c) violate any law or any rule or regulation of any
administrative agency or governmental body or any judicial or
administrative order, award, judgment or decree.
3.1.8 Absence of Change
Since the execution of this Agreement, there has been no significant
change in the condition of the Assets or the Assumed Liabilities,
financially or otherwise other than changes occurring in the ordinary
course of business, which changes have not materially adversely
affected the Manufacturing Operations, the Assets or the Assumed
Liabilities as a whole. To Seller's knowledge, there is no fact
relating to the Assets or the Assumed Liabilities that materially
adversely affects the same or which may in the future adversely affect
the same.
3.1.9 Title to Assets
Seller (or in case Seller shall cause the transfer, the transferor) has
good marketable title to all the Assets, subject to no mortgage,
pledge, lien, security interest, lease, charge, encumbrance or
conditional sale or other retention agreement. By virtue of the
deliveries made on the Closing Date, Purchaser will obtain good and
marketable title to the Assets, and, except as provided for in this
Agreement and associated agreements the Assets will be free and clear
of all liens, mortgages, pledges, encumbrances, security interest,
charges, equities, and restrictions of any nature whatsoever, save as
set out in EXHIBIT 3.1.9.
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3.1.10 Leased and Licensed Property and Assets
All leases and licenses to the Assets are valid and effective in
accordance with their respective terms, and there are no existing
defaults or events that with notice or lapse of time or both would
constitute defaults, the consequences of which would permit the
acceleration of payments due under or the termination of any of such
leases and licenses, or which would have a material adverse effect on
the Assets or the Manufacturing Operations. Seller has not received any
notice of default nor has any knowledge of any claimed default, with
respect to any lease or license. The continuation, validity and
effectiveness of all such leases and licenses assigned to Purchaser
hereunder will in no way be adversely affected by the purchase and sale
of the Assets.
3.1.11 Proprietary Rights
Seller has complete and undisputed title and ownership of or rights to
utilize all the items listed in Exhibits 1.1.2(d) and (e) necessary for
or used in the Manufacturing Operations as now conducted and as
proposed to be conducted without any conflict with or infringement of
the rights of other. Seller has not received any communications nor is
it aware of any entity alleging that it has violated or, by conducting
the Manufacturing Operations as proposed, would violate any proprietary
rights of any other person or entity. It is not aware that any of its
employees or consultants is obligated under any contract (including
licenses, covenants or commitments of any nature) or other agreement,
or subject to any judgement, decree or order of any court or
administrative agency, that would interfere with the use of his or her
best efforts to promote the interests of Purchaser or that would
conflict with the Manufacturing Operations as proposed to be conducted.
Neither the execution nor delivery of this Agreement, nor, to the best
knowledge of the Seller, the conduct of the Manufacturing Operations as
proposed, will, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any of such employees or
consultants or the Seller is now obligated.
To the best of its knowledge Seller is not making use of any
confidential information of third parties nor any confidential
information in which any of its present or, to its actual knowledge,
past employees or other service providers, has claimed a proprietary
interest; and Seller is not actually aware of any facts that would give
rise to such a claim.
3.1.12 Agreements, Etc.
None of the rights of Seller under any agreement, permit, approval or
authorization, etc., listed in Exhibit 1.1.1(e) hereto and assigned or
transferred to Purchaser hereunder will be adversely affected by the
purchase and sale of the
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Assets hereunder. Seller has performed all material obligations
required to be performed by it on or prior to the date hereof under
each said item and there is no default or claimed or purported or
alleged default or state of facts that with notice or lapse of time or
both would constitute a default on the part of any party in the
performance of any obligation to be performed or paid by any party
under any of said items. No party to any of said items intends to
cancel, withdraw, modify or amend such items.
3.1.13 Employees and Employee Plans
There are no pending claims by or on behalf of any of the Seller
pension plans, by any employee or beneficiary covered under any such
Seller pension plan, or otherwise involving any such Seller pension
plan (other than routine claims for pension benefits). There are no
strikes or labor disputes pending or threatened by any of Seller's
employees save as set out in EXHIBIT 3.1.13.
3.1.14 Environmental and Safety Matters
There has been no disposal, release, or threatened release of hazardous
substance or hazardous waste on or beneath and remain located on or
beneath any of the real property upon which the Manufacturing
Operations is conducted or upon which any of the Assets are held or
maintained, other than those authorized by permit under Swedish laws.
Seller has no knowledge of the presence, disposal, release, or
threatened release of hazardous substance or hazardous waste on or
beneath and remain located on or beneath any of the real property upon
which the Manufacturing Operations are conducted or upon which any of
the Assets are held or maintained which may have occurred prior to
Seller taking title to the real property, other than those authorized
by permit under Swedish laws. Seller has properly conducted all
activities for the removal, disposal, release, and/or processing of
Seller's waste and by-products, including any hazardous substances or
hazardous waste, and has made and maintained all reports, studies, and
evaluations required by Swedish law.
3.2 REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
3.2.1 Due Organization
The Purchaser and Flextronics Holding AB are companies duly organized,
validly existing and in good standing under the laws of Sweden.
Correspondingly, Flextronics International Ltd. is a company duly
organized, validly existing and in good standing under the laws of
Singapore.
3.2.2 Authority
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The Purchaser, Flextronics Holding AB and Flextronics International
Ltd. have individually the full right, power and authority, without the
consent of any other person, to execute and deliver this Agreement,
respectively, the Guarantee, and to carry out the transactions
contemplated hereby. All corporate acts or proceedings required to be
taken by the Purchaser, Flextronics Holding AB and Flextronics
International Ltd. to authorize the execution, delivery and performance
of this Agreement and the Guarantee and all transactions contemplated
hereby have been duly and properly taken.
3.2.3 Plans for implementation and secure sourcing
The Purchaser has in good faith prepared the implementation plan and
the plan for securing sourcing attached hereto as EXHIBIT 3.2.3 (A) AND
(b).
4. AGREEMENTS PENDING CLOSING/COVENANTS
4.1 AGREEMENTS/COVENANTS OF SELLER PENDING THE CLOSING
Seller covenants and agrees that, pending the Closing and except as
otherwise agreed to in writing by Purchaser:
4.1.1 Actions of Seller
Seller will not knowingly take any action which would result in a
breach of any of its representations and warranties hereunder.
Furthermore, Seller shall co-operate with Purchaser and use its best
efforts to cause all of the conditions to the obligations of Seller and
Purchaser under this Agreement to be satisfied on or prior to the
Closing Date.
4.1.2 Operations in the Ordinary Courses
The Manufacturing Operations shall be conducted solely in the ordinary
course consistent with past practice except as required for the
separation of the Assets and the Manufacturing Operations from Seller's
business.
4.1.3 Maintenance of Physical Assets
Seller shall continue to maintain and service the physical assets used
in the conduct of the Manufacturing Operations in the same manner as
has been its consistent past practice.
4.1.4 Employees and Business Relations
Seller shall use its best efforts to keep available the services of the
present employees and agents of the Manufacturing Operations and to
maintain the
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relations and goodwill with the suppliers, and any others having
business relations with the Manufacturing Operations.
4.1.5 Maintenance of Insurances
Seller shall notify Purchaser of any changes in the terms of the
insurance policies currently in effect.
4.1.6 Compliance with Laws etc.
Seller shall comply with all laws, ordinances, rules, regulations
and orders applicable to the Assets or the Manufacturing
Operations, the non-compliance with which might materially affect
the Assets.
4.1.7 Sale of Assets; Negotiations
Seller shall not, directly or indirectly, sell or encumber all or
any part of the Assets, other than in the ordinary course of the
business consistent with past practice, or initiate or participate
in any discussions or negotiations or enter into any agreement to
do any of the foregoing. Seller shall not provide any confidential
information concerning the Assets or the Manufacturing Operations
to any third party other than in the ordinary course of business.
4.1.8 Access
Seller shall give to Purchaser the right to reasonably inspect,
during normal business hours, all of the Assets. Such inspection
shall be carried out as agreed between the parties and in such
manner that the business of Seller is not disturbed.
4.1.9 Press releases
Except as required by applicable law, Seller shall not give notice
to third parties or otherwise make any public statement or
releases concerning this Agreement or the transactions
contemplated hereby except for such written information as shall
have been approved in writing by the Purchaser.
4.1.10 Competition Authorities
Seller shall prepare with Purchaser's concurrence all necessary
filings with competent Swedish and, if deemed necessary by the
parties, EEC competition authorities.
4.1.11 Information Systems
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Seller shall take such action for the separation of the
information system as described in EXHIBIT 4.1.11.
4.2 AGREEMENTS OF PURCHASER PENDING THE CLOSING
Purchaser covenants and agrees that, pending the Closing and
except as otherwise agreed to in writing by Seller:
4.2.1 Actions of Purchaser
Purchaser will not knowingly take any action which would result in
a breach of any of its representations and warranties hereunder.
Furthermore, Purchaser shall co-operate with Seller and use its
best efforts to cause all of the conditions to the obligations of
Purchaser and Seller under this Agreement to be satisfied on or
prior to the Closing Date.
4.2.2 Confidentiality
The Confidentiality Letter signed by Flextronics International
Ltd. on October 9, 1996, and enclosed as EXHIBIT 4.2.2 shall apply
to Purchaser, and, without limiting the aforesaid, shall also
apply to this Agreement and also apply to Purchaser regarding all
"confidential information" (as defined in the letter) obtained by
Purchaser until Closing Date.
4.2.3 Press Releases
Except as required by applicable law, Purchaser will not give
notice to third parties or otherwise make any public statement or
releases concerning this Agreement or the transactions
contemplated hereby except for such written information as shall
have been approved in writing by Seller.
4.2.4 Competition Authorities
Purchaser shall use its reasonable best efforts to assist Seller
in preparing the necessary filings with competent Competition
Authorities. Each party shall carry its costs (legal fees, etc.,
included) attributable to such filings.
4.2.5 Information Systems
Purchaser shall assist Seller in taking such actions as described
in EXHIBIT 4.1.11.
5. CONDITIONS PRECEDENT TO THE CLOSING
5.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER
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All obligations of Purchaser under this Agreement are subject to
the fulfillment, satisfaction or waiver prior to or at the
Closing, of each of the following conditions precedent:
5.1.1 Compliance with this Agreement
Seller shall have performed and complied with all agreements and
conditions required by this Agreement to be performed or complied
with by it prior to or at the Closing.
5.1.2 Material Adverse Changes
The Assets or Assumed Liabilities shall not have been and shall
not be threatened to be materially adversely affected in any way
as a result of any event or occurrence.
5.1.3 Information Systems
The information systems in the Manufacturing Operations shall have
been separated from Seller's information system in such manner
that the information systems will function as set out in EXHIBIT
5.1.3 (a). The Seller and the Purchaser shall also have entered
into the Information Systems Services Agreement in accordance with
the principles set out in EXHIBIT 5.1.3.(b).
5.1.4 Competition Authorities
Any of the following events shall have occurred:
(i) the expiry of a thirty day period from the day a complete
notification of the transactions contemplated by this
Agreement was made in accordance with the Swedish
Competition Act, without a decision by the Competition
Authority to carry out a special investigation;
(ii) the decision by the Competition Authority not to carry out
a special investigation and the approval or acceptance of
all filings made relating to the transactions between
Ericsson and Flextronics; or
(iii) the expiry of a three month period from the day the
Competition Authority decided to carry out a special
investigation, without an action having been brought before
the Stockholm District Court in accordance with Section 34
of the Swedish Competition Act.
5.1.5 Representations and Warranties
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The representations and warranties of Seller set forth in Section
3.1 of this Agreement shall have been true and correct when made
and shall be true and correct at and as of the Closing Date as if
such representations and warranties were made as of such date and
time.
5.1.6 Legal opinion
Seller shall have delivered a legal opinion set substantially as
set out in EXHIBIT 2.2. (a).
5.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLER
All obligations of Seller under this Agreement are subject to the
fulfillment, satisfaction or waiver prior to or at the Closing, of
each of the following conditions precedent.
5.2.1 Compliance with this Agreement
Purchaser shall have performed and complied with all agreements
and conditions required by this Agreement to be performed or
complied with by them prior to or at the Closing.
5.2.2 Implementation Plan
The Purchaser shall have substantially complied with the
implementation plan attached as EXHIBIT 3.2.3 (a) hereto.
5.2.3 Lease Agreement, Service Agreement
The parties shall have entered into the lease agreement and the
service agreement described in EXHIBIT 5.2.3 (a) AND (b) hereto.
The Lease and Service Agreement shall provide for an amount of SEK
two million (2,000,000) to be paid by Seller for lease of premises
and services during the twelve month period following Closing
Date.
5.2.4 Information System
The information systems in the Manufacturing Operations shall have
been separated from the Seller's information system in such manner
that the information system will function as set out in EXHIBIT
5.1.3 (a). The Seller and the Purchaser shall also have entered
into the Information Systems Services Agreement as attached hereto
as EXHIBIT 5.1.3 (b).
5.2.5 Competition Authorities
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Any of the following events shall have occurred:
(i) the expiry of a thirty day period from the day a complete
notification of the transactions contemplated by this
Agreement was made in accordance with the Swedish
Competition Act, without a decision by the Competition
Authority to carry out a special investigation;
(ii) the decision by the Competition Authority not to carry out
a special investigation and the approval or acceptance of
all filings made relating to the transactions between
Ericsson and Flextronics; or
(iii) the expiry of a three month period from the day the
Competition Authority decided to carry out a special
investigation, without an action having been brought before
the Stockholm District Court in accordance with Section 34
of the Swedish Competition Act.
5.2.6 Representations and Warranties
The representations and warranties of Purchaser set forth in
Section 3.2 of this Agreement shall have been true and correct
when made and shall be true and correct at and as of the Closing
Date as if such representations and warranties were made as of
such date and time.
5.2.7 Legal Opinion
Purchaser shall have delivered a legal opinion substantially as
set out in EXHIBIT 2.2.2 (b).
6. INDEMNIFICATION
6.1 GENERAL INDEMNIFICATION OBLIGATION OF THE SELLER
From and after the Closing Date, Seller will indemnify and hold
harmless Purchaser against and in respect of any and all damages,
losses, liabilities, costs and expenses incurred or suffered by
the Purchaser that relate to:
(i) any and all liabilities and obligations of Seller except
for those liabilities and obligations of Seller which
Purchaser assumes pursuant to this Agreement;
(ii) any misrepresentation, breach of warranty or
non-fulfillment of any agreement or covenant of Seller
under this Agreement.
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6.2 GENERAL INDEMNIFICATION OBLIGATION OF PURCHASER
From and after the Closing Date, Purchaser will indemnify and hold
harmless Seller against and in respect of any and all damages,
losses, liabilities, costs and expenses incurred or suffered by
Seller that relate to:
(i) any and all liabilities and obligations of Seller which
have been assumed by Purchaser to this Agreement;
(ii) any misrepresentation, breach of warranty or
non-fulfillment of any agreement or covenant on the part of
Purchaser under this Agreement.
6.3 METHOD OF ASSERTING CLAIMS, ETC.
Any claim in respect of breach of representations and warranties
given hereunder shall be made promptly after the claiming party
becomes aware of the breach but under all circumstances not later
than six months after Closing Date.
6.4 OTHER RIGHTS AND REMEDIES
The indemnification rights of the parties under this Section 6 are
exclusive and sever the rights and remedies the parties may have
at law or otherwise for any misrepresentation, breach of warranty
or failure to fulfill any agreement or covenant hereunder.
6.5 LIMITATION OF LIABILITY
Any claim for a misrepresentation or a breach of warranty shall
only be allowed to the extent the aggregate amount of all losses,
deficit, damages, costs, injuries and expenses of the indemnity
hereunder is an amount in excess of MSEK three (3).
The Seller shall furthermore not have any liability for any single
claim in respect of a breach of a warranty or misrepresentation
which does not amount to SEK one hundred thousand (100,000).
A party's total liability hereunder for misrepresentations or
breach of warranties shall in no circumstances exceed MSEK one
hundred (100).
6.6 TAX CONSEQUENCES
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When calculating the amount of indemnity, said amount shall be
reduced by a sum corresponding to any reduced tax liability caused
by the losses, damages, costs, etc., for which the indemnity shall
compensate.
6.7 MITIGATION OF LOSSES
In the event of a misrepresentation or breach of warranty or other
breach of this Agreement, the aggrieved party shall use its
reasonably best efforts to mitigate the losses, damages, costs,
expenses, etc.
6.8 REDUCTION OF INDEMNITY
In the event of a misrepresentation or a breach of warranty for
which the aggrieved party claims indemnity, all deviations in the
positive relative to the representations or warranties given here
under shall be taken into account and shall reduce the indemnity
claimed by the aggrieved also party by a corresponding amount (net
after tax consequences, if any).
7. POST CLOSING MATTERS
7.1 DISCHARGE OF OBLIGATIONS
From and after the Closing Date Seller shall pay and discharge, in
accordance with past practice but not less than on a timely basis,
(i) all obligations and liabilities incurred and due prior to
the Closing Date in respect of the Manufacturing
Operations and the Assets (except for those expressly
assumed by Purchaser hereunder),
(ii) all components and material ordered and delivered prior
to Closing date but invoiced within six months after
Closing Date,
(iii) services and maintenance on any of the Assets performed
prior to Closing Date but invoiced within six months after
Closing Date,
(iv) reimbursable travel expenses incurred by Employees prior
to Closing Date but invoiced after Closing Date,
(v) retroactive salary to Employees which has been agreed upon
prior to Closing Date and which is attributable to time
prior to Closing Date but which has not been paid out
prior to such date, and
(vi) in the event the Closing Date occurs on March 27, 1997,
salary to Employees and rent for the Verko property for
the period from March 27, 1997 up to and including March
31, 1997.
<PAGE> 27
26
7.2 PAYMENTS AND OTHER PROPERTY RECEIVED
Seller and Purchaser each agree that after the Closing Date they
will hold and will promptly transfer and deliver to the other,
from time to time as and when received by them, any cash, checks
with appropriate endorsements (using their best efforts not to
convert such checks into cash), or other property that they may
receive on or after the Closing Date which properly belongs to the
other party, including without limitation any insurance proceeds,
and will account to the other for all such receipts.
7.3 IS/IT
The parties shall continue the work for the separation of computer
system in accordance with the Information Systems Service
Agreement and as set out in the Post Closing Information System
Plan attached hereto as EXHIBIT 7.3. As set out in the Information
Systems Service Agreements, Seller shall provide services to the
same extent and charge as assumed in the budget prepared by Seller
for the Manufacturing Operations in 1997.
7.4 VEDEBY PLANT
In the event Purchaser would dispose of the real property
Karlskrona Telefonen 1 within five (5) years after Closing Date,
and the market value at the time for such disposal would be
different from the book value as reflected on the Final Closing
Asset List, fifty per cent of the difference shall be allocated to
Seller. If such difference is in the positive, the sum allocated
to Seller shall be paid in immediately available funds by
Purchaser into an account designated by Seller within 10 days of
disposal together with an account for the computation. If the
difference is in the negative, the sum allocated to Seller shall
be paid in immediately available funds by Seller into an account
designated by Purchaser within 10 days from the later of the day
of closing date of the disposal or Purchaser's request.
In the event the real property has been sold to a third party not
affiliated with Purchaser and without any interest of whatever
nature in Purchaser or Purchaser's affiliate, or vice versa, the
purchase price shall be deemed to be the market value.
Also a partial disposal or a disposal caused by creditors shall
give effect to Seller's right and obligation hereunder (in the
event of a partial disposal only, the book value reflected on the
Final Closing Asset List attributable to such part shall be taken
into account).
7.5 INVENTORY
<PAGE> 28
27
In the event the inventory included in the Assets as listed in
EXHIBIT 1.1.1 (B) contains products and materials which the
parties agree have become obsolete or which have not been used in
the manufacturing of products for Seller as of the second
anniversary of the Closing Date, Seller shall repurchase such
inventory for the price paid by Purchaser. No later than 30 days
after such agreement or the second anniversary, Purchaser shall
submit to Seller a list of said products and materials and the
related Purchase Price. Within 30 days of receipt of this
information, Seller shall remit said related Purchase Price to
Purchaser against delivery of the products and material concerned.
7.6 THIRD PARTY CONSENTS
If the transfer of any of the Assets require any third party
consents, Seller shall use its best efforts to obtain such consent
and Purchaser shall give Seller all reasonable assistance in such
efforts. Until such consent is obtained, or, if such consent
cannot be obtained, the parties shall jointly procure that another
solution is found which is acceptable to both parties. Upon
Seller's request, Purchaser shall, in the event of an agreement,
perform such agreements in the name of Seller to the extent
permitted but on Purchaser's account (i.e. all revenues and costs
attributable to the agreement shall be allocated to Purchaser).
7.7 ACTIONS FOR THE COMPLETION OF THE TRANSFER
After the Closing Date, the parties shall execute or take all such
other documents or actions to the extent they have not been
accomplished on the Closing Date, as shall be required in order to
transfer the Assets to Purchaser.
7.8 NEW EMPLOYMENT AND EMPLOYMENT CONDITIONS
7.8.1 Transfer of Employees
To the extent the Employees would not be transferred automatically
by law to Purchaser, Purchaser shall offer to such employees new
employment on terms and conditions not less favorable to the
employees than those enjoyed as at the day of transfer.
Purchaser shall provide to the employees transferred continued
enjoyment of perquisites substantially to the same extent as
currently in practice.
Seller and Purchaser shall use best efforts to cause the Employees
to accept the transfer. Any costs for such efforts shall be
carried jointly by the parties.
<PAGE> 29
28
7.8.2 Reimbursement for Compensation to Certain Employees
7.8.2.1 Ericsson shall reimburse Flextronics for the costs for (i) salary
during period of notice and (ii) agreed severance pay to employees
who have been given notice of termination prior to Closing Date
but whose employment will expire after Closing Date. The employees
concerned are listed in EXHIBIT 7.8.2.1 together with the amounts
involved and the agreements made. Ericsson's liability under this
undertaking shall not exceed Flextronics' actual costs and in no
event shall such liability exceed SEK two million five hundred
forty five thousand five hundred and seventy six (2,545,576).
7.8.2.2 Ericsson shall carry the costs for early retirement compensation
to such employees who have exercised their rights to early
retirement or have declared such intention prior to the Closing
Date if and to the extent not covered under any other early
retirement pensions. Flextronics shall not be liable for such
costs.
For employees who declare their intention to exercise such rights
after Closing Date, Flextronics shall carry the corresponding
costs without any right to receive compensation from Ericsson.
7.8.3 Loans to employees
As set out in EXHIBIT 3.1.6, some of the Employees have been
granted subsidized loans. The creditor of these loans is Ericsson
Finans but Seller has guaranteed these loans. Purchaser shall
replace such guarantees by guarantees given by Purchaser and
Purchaser shall participate in the administration of these loans
to the same extent as Seller has done prior to Closing Date.
7.9 COMPENSATION FOR DEFECTS IN REAL PROPERTY
Seller shall procure that a compensation of SEK one million four
hundred thousand (1,400,000) is paid out to Flextronics as
compensation for defects in the real property, inter alia, as
described in Exhibit 3.1.4. Such compensation shall be paid after
Closing Date upon Flextronics' invoice. The invoice is to be
addressed to the entity designated by Ericsson.
7.10 CONFIDENTIALITY OF SELLER
After the Closing Date, except as may be required for tax purposes
or otherwise by law, Seller shall not disclose or divulge,
directly or indirectly, to third parties any information relating
to the Assets or the Manufacturing Operations unless the
information:
(i) concerns Excluded Assets;
<PAGE> 30
29
(ii) is not of a confidential nature; or
(iii) becomes generally known otherwise than by a breach of this
confidentiality undertaking.
7.11 CONFIDENTIALITY OF PURCHASER
After the Closing Date, except as may be required for tax purposes
or otherwise by law, Purchaser shall not disclose or divulge,
directly or indirectly, to third parties any information relating
to the Excluded Assets, any liabilities of Seller which are not
included in the Assumed Liabilities or Seller's business unless
such information:
(i) is not of a confidential nature;
(ii) becomes generally known otherwise than by a breach of this
confidentiality undertaking; or
(iii) was known to Purchaser prior to its receipt from Seller.
8. MISCELLANEOUS
8.1 EXPENSES
Except as otherwise provided in this Agreement, each party hereto
shall pay its own expenses incidental to the preparation of this
Agreement, the carrying out of the provisions of this Agreement,
and the consummation of the transactions contemplated hereby.
8.2 ENTIRE AGREEMENT
This Agreement sets forth the entire understanding of the parties
hereto with respect to the transaction contemplated hereby. It
shall not be amended or modified except by written instrument duly
executed by each of the parties hereto. Any and all previous
agreements and understandings between or among the parties
regarding the subject matter hereof, whether written or oral, are
superseded by this Agreement.
8.3 ASSIGNMENT
This Agreement may not be assigned by any party hereto without the
prior written consent of the other parties. Notwithstanding the
aforesaid, Seller shall be entitled to assign all its rights
and obligations hereunder to other entities
<PAGE> 31
30
which are wholly owned by Telefonaktiebolaget LM Ericsson or its
wholly owned subsidiaries.
8.4 NOTICES
Any notice, request, demand, consent or other communication which
is required or permitted hereunder shall be in writing and shall
be deemed given only if delivered personally or sent by telefax or
by registered mail as follows:
If to Seller, to:
Ericsson Business Networks AB
131 89 STOCKHOLM
Fax 08-422 10 10
If to Purchaser, to:
Flextronics International Sweden AB
Box 532
371 23 Karlskrona
Tel: 0455-544 00
Fax: 0455-544 01 Purchaser's official switchboard number -
with a copy to Flextronics International Ltd.,
514 Chai Chee Lane
No. 04-13 Singapore 469029
Fax +65-448 6040
8.5 EXHIBITS
All Exhibits referred to herein are intended to be and hereby are
specifically made a part of this Agreement.
8.6 SEVERABILITY
If any provision of this Agreement at any time would be held
invalid or unenforceable under applicable law, the parties shall
endeavor to amend such provision so that the intention thereof can
be carried out to the extent legally possible.
9. GOVERNING LAW AND ARBITRATION
9.1 GOVERNING LAW
<PAGE> 32
31
This Agreement shall be governed by Swedish substantive law.
9.2 ARBITRATION
Any dispute, controversy or claim arising out of or in connection
with this Agreement, or the breach, termination or invalidity
thereof, shall be settled by arbitration in accordance with the
Rules of the Arbitration Institute of Stockholm Chamber of
Commerce. The place of arbitration shall be Stockholm. The
language to be used in the arbitral proceedings shall be English.
10. ENTERING INTO FORCE
This Agreement shall enter into force upon the approvals of the
boards of directors in Seller and Purchaser. Immediately after
such approval, each party shall notify each other. In the event no
approval has been given within eight (8) weeks this Agreement
shall be null and void and the provisions in the event of the
termination of negotiations included in the letter of intent dated
November 15, 1996, between the parties shall apply.
* * *
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement in duplicate on the date first written.
ERICSSON BUSINESS FLEXTRONICS INTERNATIONAL
NETWORKS AB SWEDEN AB
------------------------ -----------------------
By: Rolf Erikssson By: Michael E. Marks
------------------------ ------------------------
By: Gosta Burlin By: Ronny Nilsson
GUARANTEE
We, the parties to this guarantee, hereby jointly and severally guarantee as for
a debt of our own (Sw: proprieborgen) the due and punctual fulfillment of all
the Purchaser's obligations under the Agreement as set out above. Sections 9.1
and 9.2 of the Agreement shall apply to this Guarantee provided, however, that
Flextronics and its Affiliates may only appoint one arbitrator jointly.
Date: February 12, 1997
<PAGE> 33
32
Place: Nacka
FLEXTRONICS FLEXTRONICS INTERNATIONAL LTD.
HOLDING AB
- ---------------------- ------------------------------
By: Michael E. Marks
By: Michael E. Marks
- ----------------------
By: Ronny Nilsson
<PAGE> 34
EXHIBITS
<TABLE>
<S> <C>
Exhibit 1.1.1(a) Real Property
Exhibit 1.1.1(b) Tangible Assets
Exhibit 1.1.1(c) Receivables
Exhibit 1.1.1(d) Expensed Equipment
Exhibit 1.1.1(e) Agreements, permits, approvals authorization
Exhibit 1.1.1(f) All Orders
Exhibit 1.1.1(g) Computer Software
Exhibit 1.1.1(h) Information, Files, Records etc.
Exhibit 1.1.2(a) Excluded Assets, Properties or Rights etc.
Exhibit 1.1.2(b) Excluded Specific Tools
Exhibit 1.1.2(d) Excluded Information Systems
Exhibit 1.1.2(d) Excluded Patents, Trademark, Service Mark
Exhibit 1.1.2(e) Excluded Technologies, Technical Designs or
Exhibit 1.1.2(g) Excluded Inventory
Exhibit 1.1.2(h) Excluded Other Assets, Properties or Rights
Exhibit 1.3(a) Assumed Liabilities and Obligations
Exhibit 1.4.1 Interim Asset List
Exhibit 1.4.2 Particular Accounting Principles
Exhibit 1.5 Employees
Exhibit 2.2.2(a) Legal Opinion of Purchaser
Exhibit 2.2. (b) Legal Opinion of Seller
Exhibit 3.1.4 Defects in Real Property
Exhibit 3.1.6 Names, Positions etc. of Employees
Exhibit 3.1.9 Mortgages, liens etc.
Exhibit 3.1.13 Labour disputes or claims
Exhibit 3.2.3(a) Implementation Plan
Exhibit 3.2.3(b) Plan for Secure Sourcing
Exhibit 4.1.5 Insurance Policies
Exhibit 4.1.11 Separation of the Information System
Exhibit 4.2.2 Confidentiality Letter
Exhibit 5.1.5(a) Separated Information system
Exhibit 5.1.5(b) Principles for Information Systems Services Agreement
</TABLE>
<PAGE> 35
35
<TABLE>
<S> <C>
Exhibit 5.2.4(a) Lease Agreement for Excluded Assets
Exhibit 5.2.4(b) Service Agreement
Exhibit 7.3 Post Closing Information System Plan
Exhibit 7.8.2 Employees Given Notice of Termination
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
to the use of our reports dated May 13, 1996 with respect to the consolidated
financial statements of Flextronics International Ltd. in the Registration
Statement (Form S-3) and related Prospectus of Flextronics International Ltd.
for the registration of 1,750,000 shares of its Ordinary Shares.
Ernst & Young
Singapore
February 11, 1997
II-7
<PAGE> 1
EXHIBIT 23.4
INDEPENDENT AUDITORS' CONSENT
We understand that Flextronics International Limited is planning to issue
approximately 1.75 Million new shares by public offering. We hereby consent to
the filing of the audited financial statements of Assembly & Automation
(Electronics) Limited and its subsidiary companies for the 18 month period
ended 31 December 1994 for the purposes of this share offering.
/s/ Coopers & Lybrand
Coopers & Lybrand
Cardiff, Wales
7 February 1997
