<PAGE> 1
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE FISCAL YEAR ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM
--------------- TO
---------------
COMMISSION FILE NUMBER: 0-23354
FLEXTRONICS INTERNATIONAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
SINGAPORE NOT APPLICABLE
(STATE OR OTHER JURISDICTION (I.R.S. EMPLOYER
OF INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
514 CHAI CHEE LANE #04-13, 469029
BEDOK INDUSTRIAL ESTATE, SINGAPORE (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>
(65) 449-5255
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
ORDINARY SHARES, S$0.01 PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of June 30, 1997 was approximately $371 million.
As of June 30, 1997, registrant had outstanding 13,752,293 Ordinary Shares.
================================================================================
<PAGE> 2
THE COMPANY HAS REVISED ITS ACCOUNTING FOR ITS FEBRUARY 1996 ACQUISITION OF
ASTRON GROUP LIMITED, AND IS ENGAGED IN ONGOING DISCUSSIONS WITH THE STAFF OF
THE SECURITIES AND EXCHANGE COMMISSION CONCERNING THIS REVISED ACCOUNTING.
BECAUSE THESE DISCUSSIONS ARE CONTINUING, THE COMPANY'S ACCOUNTING FOR THIS
ACQUISITION, AND RELATED DISCLOSURES, ARE SUBJECT TO MODIFICATION.
Except for historical information contained herein, the matters discussed
in this Form 10-K are forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. In this Report, the words "expects,"
"anticipates," "believes," "intends" and similar expressions identify
forward-looking statements, which speak only as of the date hereof. These
forward-looking statements are subject to certain risks and uncertainties,
including, without limitation, those discussed in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors Affecting Future Operating Results," that could
cause results to differ materially from historical results or those anticipated.
The Company undertakes no obligation to publicly disclose any revisions to these
forward-looking statements which may be made to reflect events or circumstances
occurring subsequent to the filing of this Form 10-K with the Securities and
Exchange Commission. Readers are urged to carefully review and consider the
various disclosures made by the Company in this report and in the Company's
other reports filed with the Securities and Exchange Commission, including its
Form 10-Qs and 8-Ks, that attempt to advise interested parties of the risks and
factors that may affect the Company's business.
PART I
ITEM 1. BUSINESS.
GENERAL
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 device industries. Flextronics offers a full range of
services including product design, printed circuit board ("PCB") fabrication and
assembly, materials procurement, inventory management, final system assembly and
testing, packaging and distribution. The components, subassemblies and finished
products manufactured by Flextronics incorporate advanced interconnect,
miniaturization and packaging technologies, such as surface mount ("SMT"),
chip-on-board ("COB"), ball grid array ("BGA") and miniaturized gold-plated PCB
technology. The Company's strategy is to use its global manufacturing
capabilities and advanced technological expertise to provide its customers with
a complete manufacturing solution, highly responsive and flexible service,
accelerated time to market and reduced production costs. The Company targets
leading OEMs, in growing vertical markets, with which it believes it can
establish long-term relationships, and serves its customers on a global basis
from its strategically located facilities in North America, Asia and 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 and U.S. Robotics.
On March 27, 1997, the Company acquired from Ericsson Business Networks AB
("Ericsson") two manufacturing facilities (the "Karlskrona Facilities") located
in Karlskrona, Sweden and related inventory, equipment and other assets for
approximately $82.4 million in cash. The Karlskrona Facilities include a 220,000
square foot facility and a 110,000 square foot facility, each of which is ISO
9002 certified. The Company is currently utilizing the Karlskrona Facilities to
assemble and test printed circuit boards, network switches, cordless base
stations and other components for business communications systems sold by
Ericsson, and the Company intends to also use the Karlskrona Facilities to offer
advanced contract manufacturing services to other European OEMs. has been, Ronny
Nilsson, previously the Vice President and General Manager, Supply and
Distribution of Ericsson, was appointed President of Flextronics International
Sweden AB and Senior Vice President, Europe of the Company. Approximately 870
employees are currently based at the Karlskrona Facilities.
2
<PAGE> 3
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 designer and
manufacturer of multichip module 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 injection molded plastics for
Asian electronics companies; opened an additional manufacturing facility in San
Jose, California; closed its plant in Texas; and downsized manufacturing
operations in Singapore. The Company is continuing to expand its manufacturing
operations by developing integrated campuses in Doumen, China and Guadalajara,
Mexico and adding facilities in San Jose, California.
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 30.0% from 1992 through 1996, to approximately $60 billion.
According to this study, the industry 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.
3
<PAGE> 4
Improve Inventory Management and Purchasing Power. OEMs are faced with
increasing challenges in planning, procuring and managing their inventories
efficiently due to frequent design changes, short product life cycles,
large investments in electronic components, component price fluctuations
and the need to achieve economies of scale in materials procurement.
Contract manufacturers' inventory management expertise and volume
procurement capabilities can reduce OEM production and inventory costs,
helping them respond to competitive pressures and increase their return on
assets.
Access Worldwide Manufacturing Capabilities. OEMs are increasing their
international activities in an effort to lower costs and access foreign
markets. Contract manufacturers with worldwide capabilities are able to
offer such OEMs a variety of options on manufacturing locations to better
address their objectives regarding costs, shipment location, frequency of
interaction with manufacturing specialists and local content requirements
of end-market countries. In addition, OEMs in Europe and other
international markets are increasingly recognizing the benefits of
outsourcing.
STRATEGY
The Company's objective is to enhance its position as a provider of
advanced contract manufacturing and design services to OEMs worldwide. The
Company's strategy to meet this objective includes the following key elements:
Leverage Global Presence. The Company has established a manufacturing
presence in the world's major electronics markets -- Asia, North America
and Europe -- in order to serve the increasing outsourcing needs of
regional OEMs and to provide the global, large scale capabilities required
by larger OEMs. The Company has recently substantially increased its
overall capacity by acquiring the Karlskrona Facilities in Sweden, and is
continuing to expand by developing manufacturing campuses in China and
Mexico and expanding its operations in San Jose, California. 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 significantly 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
4
<PAGE> 5
in China and Mexico to further reduce material and transportation costs.
The Company also intends to establish warehousing capabilities from which
it can ship products into customers' distribution channels.
Target Leading OEMs in Growing Vertical Markets. The Company has
focused its marketing efforts on fast growing industry sectors that are
increasingly outsourcing manufacturing operations, such as the
communications, computer, consumer electronics and medical 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
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors Affecting Future Operating Results."
CUSTOMERS
The Company's customers consist of a select group of OEMs in the
communications, computer, consumer electronics and medical device industries.
Within these industries, the Company's strategy is to seek long-term
relationships with leading companies that seek to outsource significant
production volumes of complex products. The Company has increasingly focused on
sales to larger companies and to customers in the communications industries. In
fiscal 1997, the Company's five largest customers accounted for approximately
46% of net sales. The loss of one or more major customers would have a material
adverse effect on the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- 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>
<S> <C>
Customer......................................... End Products
Advanced Fibre Communications.................... Local line loop carriers
Braun/ThermoScan................................. Temperature monitoring systems
Compaq........................................... Modems
Diebold.......................................... Automatic teller machines
Ericsson......................................... Business telecommunications systems
Lifescan (a Johnson & Johnson company)........... Portable glucose monitoring system
Microsoft........................................ Computer peripheral devices
U.S. Robotics.................................... Pilot electronic organizers
</TABLE>
In addition, in fiscal 1997 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 (video
cameras for personal computers).
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 "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Certain Factors
Affecting Future Operating Results."
SALES AND MARKETING
The Company achieves worldwide sales coverage through a 37-person direct
sales force, which focuses on generating new accounts, and through 20 program
managers, who are responsible for managing relationships with existing customers
and making follow-on sales. In North America, the Company maintains sales
offices in California and Massachusetts, as well as a recently established sales
office in Florida. The Company's Asian sales offices are located in Singapore
and Hong Kong. In Europe, the Company maintains sales offices in England,
Germany and the Netherlands. The Company is expanding its European sales force,
and intends to
5
<PAGE> 6
establish additional European sales offices in France and Sweden. In addition to
its sales force, the Company's executive staff plays an integral role in the
Company's marketing efforts. See "Item 10 -- Directors and Executive Officers of
the Registrant -- Management Team Changes."
SERVICES
The Company provides a broad range of advanced engineering, manufacturing
and distribution services to OEM customers on a turnkey basis (and, to a lesser
extent, on a consignment 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 MCM products and miniature
gold-finished PCBs that customers then incorporate into their products.
Engineering Services
The engineering services group coordinates and integrates the Company's
worldwide design, prototype and other engineering capabilities. Its focused,
integrated approach provides 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 1995 acquisition of
nCHIP provides advanced MCM design capabilities. Flextronics has integrated the
nCHIP capabilities, and is integrating the Fine Line capabilities, with the
Company's existing design and prototype capabilities in its engineering services
group. The Company plans to expand its design and prototype capabilities in
Boston, Massachusetts and San Jose, California, and also intends to establish
design and prototype capabilities in the Karlskrona Facilities.
Materials Procurement and Management
Materials procurement and management consists of the planning, purchasing,
expediting and warehousing of the components and materials used in the
manufacturing process. The Company's inventory management expertise and volume
procurement capabilities contribute to cost reductions and reduce total 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 "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Certain Factors Affecting Future Operating Results -- Limited Availability of
Components." The campuses
6
<PAGE> 7
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. In addition, the
Company has invested in FICO, a producer of injection molded plastic for Asia
electronics companies with facilities in Shenzhen, China.
As OEMs seek to provide greater functionality in smaller products, they
increasingly require advanced manufacturing technologies and processes. Most of
the Company's PCB assembly involves the use of SMT, which is the leading
electronics assembly technique for more sophisticated products. SMT is a
computer-automated process which permits attachment of components directly on
both sides of a PCB. As a result, it allows higher integration of electronic
components, offering smaller size, lower cost and higher reliability than
traditional manufacturing processes. By allowing increasingly complex circuits
to be packaged with the components placed in closer proximity to each other, SMT
greatly enhances circuit processing speed, and therefore board and system
performance. The Company also provides traditional PTH electronics assembly
using PCBs and leaded components for lower cost products.
In addition, the Company has invested in emerging technologies that extend
its miniaturization capabilities. The Company's 1995 acquisition of nCHIP
provided it with advanced capabilities to design and assemble MCMs (collections
of integrated circuit chips interconnected within a single package), and the
Company now offers a range of MCM technologies from low-cost laminate MCMs to
high-performance, deposited thin-film MCMs. The Company assembles completed MCMs
in its San Jose, California facilities and also utilizes an outside assembly
company for assembly of completed MCMs.
The Company's 1996 acquisition of Astron provided it with significant
capabilities to fabricate miniature goldfinished PCBs for specialized
applications such as cellular phones, optoelectronics, LCDs, pagers and
automotive electronics. These advanced laminate substrates can significantly
improve a product's performance, while reducing its size and cost. The Company's
miniature, gold-finished PCBs are fabricated in the Company's facility in China.
The Company is currently expanding this facility to provide the capacity to
fabricate other complex PCBs.
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.
7
<PAGE> 8
Distribution
The Company offers its customers flexible, just-in-time delivery programs
allowing product shipments to be closely coordinated with customers' inventory
requirements. Increasingly, the Company is warehousing products for customers
and shipping those products directly into their distribution channels. The
Company believes that this service can provide customers with a more
comprehensive solution and enable them to be more responsive to market demands.
COMPETITION
The electronics contract manufacturing industry is extremely competitive
and includes hundreds of companies, several of whom have achieved substantial
market share. The Company competes against numerous domestic and foreign
contract manufacturers, and current and prospective customers also evaluate the
Company's capabilities against the merits of internal production. In addition,
in recent years the electronics contract manufacturing industry has attracted a
significant number of new entrants, including large OEMs with excess
manufacturing capacity, and many existing participants, including the Company,
have significantly increased their manufacturing capacity by expanding their
facilities and adding new facilities. In the event of a decrease in overall
demand for contract manufacturing services, this increased capacity could result
in substantial pricing pressures which could adversely affect the Company's
operating results. Certain of the Company's competitors, including Solectron
Corporation and SCI Systems, have substantially greater manufacturing,
financial, research and development and marketing resources than the Company.
Others, such as Jabil Circuits and Celestica, are rapidly increasing their sales
and capacity. As competitors increase the scale of their operations, they may
increase their ability to realize economies of scale, to reduce their prices and
to more effectively meet the needs of large OEMs. The Company believes that the
principal competitive factors in the segments of the contract manufacturing
industry in which it operates are cost, technological capabilities,
responsiveness and flexibility, delivery cycles, location of facilities, product
quality and range of services available. Failure to satisfy any of the foregoing
requirements could materially adversely affect the Company's competitive
position.
EMPLOYEES
As of May 31, 1997, the Company employed 5,518 persons, including
approximately 870 employees in Sweden who were added with the acquisition of the
Karlskrona Facilities. The Company's non-management employees located in
Singapore, Sweden and China, and the Company's hourly employees in the United
Kingdom, are represented by labor unions. The Company has never experienced a
work stoppage or strike. The Company believes that its employee relations are
good.
The Company's success depends to a large extent upon the continued services
of key managerial and technical employees. The loss of such personnel could have
a material adverse effect on the Company'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 "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Certain Factors Affecting Future Operating Results --
Dependence on Key Personnel and Skilled Employees" and "Item 10 - Directors and
Executive Officers of the Registrant -- Management Team Changes."
ACQUISITION OF KARLSKRONA FACILITIES
On March 27, 1997, the Company acquired from Ericsson the Karlskrona
Facilities located in Karlskrona, Sweden and related inventory, equipment and
other assets for approximately $82.4 million in cash. The Karlskrona Facilities
include a 220,000 square foot facility and a 110,000 square foot facility, each
of which is ISO 9002 certified. These facilities assemble printed circuit
boards, network switches, cordless base stations and other components for
business communications systems sold by Ericsson. Approximately 870 Ericsson
employees currently based at the Karlskrona Facilities are expected to remain
employed by the Company at the facilities. In addition, at the closing of the
transaction, Ronny Nilsson, previously the Vice
8
<PAGE> 9
President and General Manager, Supply and Distribution of Ericsson, was
appointed President of Flextronics International Sweden AB and Senior Vice
President, Europe of the Company.
The Company, certain of its subsidiaries and Ericsson also entered into the
Purchase Agreement, under which the Company will manufacture and Ericsson will
purchase, for a three-year period, certain products used in Ericsson's business
communications systems. The Company believes that, as a result, sales to
Ericsson will account for a large portion of its net sales in fiscal 1998. The
Karlskrona Facilities' cost of sales and services (including certain overhead
allocations) for the year ended December 31, 1996 was approximately 2.1 billion
Swedish kronor (approximately $310.0 million based on exchange rates at December
31, 1996). However, there can be no assurance as to the volume of Ericsson's
purchases, or the mix of products that it will purchase, from the Karlskrona
Facilities in any future period.
By acquiring the Karlskrona Facilities, the Company substantially increased
its worldwide capacity, obtained a strong base in Northern Europe and enhanced
its position as a contract manufacturer for the telecommunications industry,
which is increasingly outsourcing manufacturing. The Company also intends to use
the manufacturing resources provided by the Karlskrona Facilities to offer
services to other European OEMs, which it believes are beginning to outsource
the manufacture of significant product lines.
Assuming Ericsson's sales of those products that the Company will
manufacture remain at current levels, the Company anticipates realizing
approximately $300 million of sales (based on current exchange rates) to
Ericsson in fiscal 1998; however, there can be no assurance that the Company's
sales to Ericsson will not be materially less than those anticipated. Although
the Company expects that its gross margin percentage on sales to Ericsson will
be less than that realized by the Company in fiscal 1996 and 1997, it also
expects that the impact of lower gross margins may be partially offset by the
effect of anticipated lower overhead and sales expenses, as a percentage of net
sales, associated with supplying products to Ericsson relative to supplying
products to other OEMs. To the extent that the Company is successful in
increasing the capacity of the Karlskrona Facilities and in using these
facilities to provide services to other OEMs, the Company anticipates increased
operating efficiencies. There can be no assurance that the Company will realize
lower overhead or sales expenses or increased operating efficiencies as
anticipated.
The foregoing, and discussions elsewhere in this Report, contain a number
of forward-looking statements relative to the benefits and effects of the
acquisition of the Karlskrona Facilities, the execution of the Purchase
Agreement (together, the "Ericsson Transaction"), and the Company's relationship
with Ericsson including the Company's sales to Ericsson, the Company's net
sales, gross margins and results of operations, and no assurances can be given
as to the Company's ability to achieve such benefits and results. The Company
undertakes no obligation to publicly disclose the results of any revisions to
these forward-looking statements which may be made to reflect events or
circumstances occurring subsequent to the date hereof. The Ericsson Transaction
and the Company's business are subject to a number of risks that could adversely
affect the Company's ability to achieve these operating results and the
anticipated benefits of the Ericsson Transaction, including the Company's
ability to reduce costs at the Karlskrona Facilities, the Company's lack of
experience operating in Sweden, the Company's ability to transition the
Karlskrona Facilities from captive manufacturing for Ericsson to manufacturing
for third parties and to expand capacity at these facilities and to integrate
these facilities into its global operations. In addition, there can be no
assurance that the Company will utilize a sufficient portion of the capacity of
the Karlskrona Facilities to achieve profitable operations. Further, changes in
exchange rates between Swedish kronor and U.S. dollars will affect the Company's
operating results at the Karlskrona Facilities. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Certain Factors
Affecting Future Operating Results -- Risks of Ericsson Transaction."
The Purchase Agreement contains cost reduction targets and price
limitations and imposes on the Company certain manufacturing quality
requirements, and there can be no assurance that the Company can achieve
acceptable levels of profitability under the Purchase Agreement or reduce costs
and prices to Ericsson over time as contemplated by the Purchase Agreement. In
addition, the Purchase Agreement requires that the Company maintain a ratio of
equity to total liabilities, debt and equity of at least 25%, and a current
ratio of at least 120%. Further, the Purchase Agreement prohibits the Company
from selling or relocating the equipment acquired in the transaction without
Ericsson's consent. A material breach by the Company of any of the terms
9
<PAGE> 10
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 any 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. As a result of these rights, Ericsson may, under certain
circumstances, retain a significant degree of control over the Karlskrona
Facilities and their management. However, the Company understands that it is
Ericksson's intention that the Company utilize the Karlskrona Facilities to
provide services not just to Ericsson, but also to other OEMs, and Ericsson will
receive price reductions if the Company is able to reduce costs at the
Karlskrona Facilities through resulting volume efficiencies.
ITEM 2. PROPERTIES.
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 as of March 31, 1997 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.
Hong Kong, China............ 1985 45,000 Leased Fabrication of high density
PCBs
Xixiang, China.............. 1995 90,000 Leased High volume PCB assembly.
Doumen, China............... 1995 175,000(3) 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(2)............. 1989 30,000 Leased Advanced packaging and MCM
fabrication.
Tonypandy, Wales............ 1983 50,000 Owned Full systems manufacturing;
medium complexity PCB
assembly.
Karlskrona, Sweden.......... 1997 330,000 Owned Assembly and test of complex
PCBs and systems.
Existing Engineering
Facilities
Westford, MA................ 1987 9,112 Leased Design and prototype
services.
Singapore................... 1982 (4) -- Design and prototype
services.
San Jose, CA................ 1989 (4) --
Los Gatos, CA............... 1986(5) 15,000 Leased Design and prototype
services. Design and
prototype services.
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
YEAR APPROXIMATE OWNED/
LOCATION COMMENCED SQUARE FEET LEASED(1) SERVICES
- ------------------------------ --------- ----------- --------- ----------------------------
<S> <C> <C> <C> <C>
Facilities Under Development
San Jose, CA................ 1997(6) 73,000 Owned Complex, high value-added
PCB assembly.
San Jose, CA................ 1996(6) 71,000 Leased Engineering services and
corporate functions.
Doumen, China............... 1996(6) 224,000 Owned Fabrication of high volume
PCBs, high volume PCB
assembly, injection molded
plastics for electronics.
Guadalajara, Mexico......... 1997(6) 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 has been closed. The
Company leases this facility under a lease that expires in April 2000, and
the Company is seeking to sublet this facility.
(2) The Company has downsized manufacturing operations at this facility in
fiscal 1997.
(3) Includes 88,000 square feet used for dormitories and other functions. The
Company has land use rights for this facility through 2020.
(4) Located within the 47,000 square foot manufacturing facility in Singapore
and the 30,000 square foot manufacturing facility in San Jose, California,
respectively.
(5) Acquired by the Company in fiscal 1997 in connection with the Fine Line
acquisition.
(6) Refers to date of commencement of construction or of lease term.
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 has closed its Richardson,
Texas facility and downsized manufacturing operations at its Singapore facility,
while substantially increasing overall capacity by expanding operations in North
America, 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
the Company is developing a planned 101,000 square foot manufacturing facility
on a 32-acre campus site in Guadalajara, Mexico. The Company expects the
construction of the new San Jose and Guadalajara facilities will be completed in
the summer of 1998. In Asia, the Company is expanding its Doumen facilities into
a planned 393,000 square foot campus by developing an additional 224,000 square
feet, and the Company expects the construction of this expansion will be
completed in the second quarter of fiscal 1998.
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.
FICO, in which the Company has a 40.0% investment, produces injection
molded plastics for Asian companies from its 120,000 square foot facilities in
Shenzhen, China. Flextronics intends to locate FICO operations within the campus
under development in Doumen, China.
ITEM 3. LEGAL PROCEEDINGS.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
11
<PAGE> 12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS.
PRICE RANGE OF ORDINARY SHARES
The Company's Ordinary Shares have been traded on the Nasdaq National
Market under the symbol "FLEXF" since March 18, 1994. The following table shows
the high and low closing sales prices per share of the Company's Ordinary Shares
for fiscal years 1995, 1996 and 1997.
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal 1995
First Quarter.......................................... $14.00 $ 8.75
Second Quarter......................................... $15.50 $ 9.00
Third Quarter.......................................... $16.25 $12.75
Fourth Quarter......................................... $18.00 $13.00
Fiscal 1996
First Quarter.......................................... $21.875 $13.50
Second Quarter......................................... $26.75 $21.75
Third Quarter.......................................... $30.00 $21.00
Fourth Quarter......................................... $35.75 $25.75
Fiscal 1997
First Quarter.......................................... $39.00 $25.00
Second Quarter......................................... $28.25 $17.00
Third Quarter.......................................... $37.25 $21.00
Fourth Quarter......................................... $29.75 $19.625
</TABLE>
On June 30, 1997, the closing sales price of the Ordinary Shares was $27.00
per share. On that date, there were 480 shareholders of record.
DIVIDENDS
Since inception, the Company has not declared or paid any cash dividends on
its Ordinary Shares, and the Company's 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.
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 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
12
<PAGE> 13
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. Under Article 22(iii) of the Articles of
Association of the Company, its directors are authorized to refuse to register a
transfer unless the instrument of transfer has been duly stamped.
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). No tax treaty currently exists
between the Republic of Singapore and the U.S.
Income Taxation Under United States Law
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 not be short-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.
Individual shareholders that are U.S. citizens or resident aliens (as
defined in Section 7701(b) of the Internal Revenue Code of 1986 (the "Code")),
corporations or partnerships or other entities created or organized under the
laws of the United States, or any political subdivision thereof, an estate the
income of which is subject is subject to U.S. federal income taxation regardless
of its source or a trust if a U.S. court exercises primary jurisdiction over its
administration an one or more U.S. fiduciaries have the authority to control all
of its substantial decisions ("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.
If over 50.0% of the Company's stock (by vote or value) were owned by U.S.
Shareholders who individually held 10.0% 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 50.0% 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 75.0% 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. As of June 30, 1997, the
Company was aware of only one U.S. Shareholder who individually held 10% or more
of its voting stock. See "Item 12 -- Security Ownership of Certain Beneficial
Owners and Management."
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.
13
<PAGE> 14
shareholders, upon the sale or exchange of a share, would 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 in aggregate with any other assets subject to
Singapore estate tax) exceeds S$600,000. Any such excess will be taxed at a rate
equal to 5.0% on the first S$12,000,000 of the individual's Singapore chargeable
assets and thereafter at a rate equal to 10.0%. 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.
14
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected financial data of the Company as of
and for each of the fiscal years ended March 31, 1993, 1994, 1995, 1996 and
1997. The selected financial data set forth below for the fiscal years ended
March 31, 1995, 1996 and 1997 have been derived from consolidated financial
statements of the Company which have been audited by Ernst & Young, independent
auditors, whose report thereon is included elsewhere herein. The selected
financial data set forth below for the fiscal years ended March 31, 1993 and
1994 has been derived from audited financial statements not included in this
Report. 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>
YEAR ENDED MARCH 31,
------------------------------------------------------------
1993 1994 1995(1) 1996(2) 1997(3)
-------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $100,759 $131,345 $237,386 $448,346 $490,585
Cost of sales..................... 91,794 117,392 214,865 407,457 440,448
-------- -------- -------- -------- --------
Gross profit................... 8,965 13,953 22,521 40,889 50,137
Selling, general and
administrative expenses........ 7,131 8,667 11,468 18,787 28,884
Research and development.......... 81 202 91 29,000 --
Goodwill and intangibles
amortization................... 388 419 755 1,283 2,635
Bank commitment and consulting
fees........................... -- -- -- -- 1,831
Provision for plant closings...... -- 830 -- 1,254 5,868
-------- -------- -------- -------- --------
Operating income (loss)........ 1,365 3,835 10,207 (9,435) 10,919
Interest expense and other, net
............................... 2,329 1,376 1,043 1,906 1,485
Merger expenses................... -- -- 816 -- --
Income from associated company.... -- -- -- -- 241
Income (loss) from joint
venture........................ -- (70) (729) -- --
-------- -------- -------- -------- --------
Income (loss) before income
taxes........................ (964) 2,389 7,619 (11,341) 9,675
Provision for income taxes........ 264 654 1,463 3,791 2,212
Extraordinary gain................ -- 416 -- -- --
Net income (loss).............. $ (1,228) $ 2,151 $ 6,156 $(15,132) $ 7,463
======== ======== ======== ======== ========
Net income (loss) per share....... $ (0.17) $ 0.28 $ 0.51 $ (1.19) $ 0.50
======== ======== ======== ======== ========
Weighted average Ordinary Shares
and
equivalents.................... 7,382 7,730 12,103 12,684 14,877
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
------------------------------------------------------------
1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........... (1,201) 30,669 33,425 30,801 (25,047)
Total assets........................ 52,430 103,129 116,117 231,024 359,234
Long-term debt and capital lease
obligations, excluding current
portion........................... 17,243 4,755 6,890 17,674 12,302
Shareholders' equity (deficit)...... (2,256) 46,703 57,717 73,059 83,592
</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.
15
<PAGE> 16
(2) In the fourth quarter of fiscal 1996, the Company wrote off $29.0 million of
In-process research and development associated with the acquisition of
Astron and also recorded charges totaling $1.3 million for costs associated
with the closing of one of the Company's Malaysian plants and its Shekou,
China operations. The Consolidated Financial Statements of the Company for
the fiscal year ended March 31, 1996 have been restated as a result of
changes in the Company's accounting for the acquisition of Astron. See Note
14 of Notes to Consolidated Financial Statements and "Item 7 -- Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Recent Changes in Accounting for Astron Acquisition."
(3) In the third and fourth quarters of fiscal 1997, the Company incurred plant
closing expenses aggregating $5.9 million in connection with the closing of
its Texas facility and the nCHIP semiconductor fabrication facility and the
downsizing of its Singapore manufacturing operation.
16
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Except for historical information contained herein, the matters discussed
in this Form 10-K are forward-looking statements within the meaning of Section
21E of the Securities Exchange Act of 1934, as amended, and Section 27A of the
Securities Act of 1933, as amended. In this Report, the words "expects,"
"anticipates," "believes," "intends" and similar expressions identify
forward-looking statements, which speak only as of the date hereof. These
forward-looking statements are subject to certain risks and uncertainties,
including, without limitation, those discussed in Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Certain Factors Affecting Future Operating Results," that could
cause results to differ materially from historical results or those anticipated.
The Company undertakes no obligation to publicly disclose any revisions to these
forward-looking statements which may be made to reflect events or circumstances
occurring subsequent to the filing of this Form 10-K with the Securities and
Exchange Commission. Readers are urged to carefully review and consider the
various disclosures made by the Company in this report and in the Company's
other reports filed with the Securities and Exchange Commission, including its
Form 10-Qs and 8-Ks, that attempt to advise interested parties of the risks and
factors that may affect the Company's business.
OVERVIEW
The Company was organized in Singapore in 1990 to acquire the Asian
contract manufacturing operations and certain U.S. design, sales and support
operations of Flextronics, Inc. (the "Predecessor"), which had been in the
contract manufacturing business since 1982. The acquisition of the selected
operations of the Predecessor for approximately $39.0 million was completed in
June 1990 and was financed with approximately $20.0 million of secured long-term
bank debt, $4.0 million of subordinated debt and $15.0 million of equity. After
such acquisition, the equity investors held approximately 55% of the outstanding
share capital of the Company. The Company's results of operations for periods
following the 1990 acquisition and through March 1994 reflect the interest
expense associated with the indebtedness incurred in connection with this
transaction.
In July 1993 a group of new investors acquired a controlling interest in
the Company through the acquisition of substantially all of the interest in the
Company that had been retained by the Predecessor, a direct equity investment of
$3.2 million in the Company and the purchase of a portion of the shares acquired
by the investors in the 1990 acquisition. In December 1993 the Company raised an
additional $7.0 million of equity capital from investors ($3.7 million of which
represented the conversion of its outstanding subordinated debt into equity). In
March 1994 the Company raised $32.5 million in an initial public offering of
Ordinary Shares. In August 1995 the Company raised an additional $22.3 million
in a public offering of Ordinary Shares.
In recent years, the Company has substantially expanded its manufacturing
capacity, technological capabilities and service offerings, through both
acquisitions and internal growth. See "Certain Factors Affecting Future
Operating Results -- Management of Expansion and Consolidation," "Certain
Factors Affecting Future Operating Results -- Acquisitions" and Note 14 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. In
March 1997, the Company decided to close the entire wafer fabrication
operations, and the Company is currently seeking to sell the related assets. See
"-- Provision for Plant Closings."
In April 1995, the Company acquired A&A, a contract manufacturer located in
Wales, in exchange for an aggregate of $2.9 million and 66,908 Ordinary Shares.
The Company's financial statements for fiscal 1996 include the operating results
of A&A from April 12, 1995 to March 31, 1996.
In February 1996, the Company acquired Astron Group Limited in exchange for
(i) $13,440,605 in cash, (ii) $15.0 million in 8% promissory notes, ($10.0
million of which was paid in February 1997 and $5.0 million of which is payable
in February 1998), (iii) 238,684 Ordinary Shares issued at closing and (iv)
Ordinary
17
<PAGE> 18
Shares with a value of $10.0 million to be issued on June 30, 1998. The Company
also paid an earnout of an additional $6.25 million in cash in April 1997, based
on the pre-tax profit of Astron for the calendar year ended December 31, 1996.
In addition, in February 1996, the Company agreed to pay in June 1998 a $15.0
million consulting fee to an entity affiliated with Stephen Rees, a former
shareholder and the Chairman of Astron and a director of the Company. Payment of
the fee was conditioned upon, among other things, Mr. Rees' continuing as
Chairman of Astron through June 1998. In March 1997, the Company and Mr. Rees'
affiliate agreed to remove the remaining conditions to payment of the fee and to
reduce the amount of the fee, which remains payable in June 1998, to $14.0
million. Of the $14.0 million, $5.0 million must be paid in cash. The remainder
may be paid in either cash or Ordinary Shares at the option of the Company, and
the Company currently intends to pay such amount in Ordinary Shares. The
acquisition of Astron 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.
In the fourth quarter of fiscal 1996 the Company also recorded one time
charges totaling $1.3 million for costs associated with the closing of one of
the Company's Malaysia plants and its Shekou, China operations in addition to
the write off of $29.0 million of In-Process R&D associated with the acquisition
of Astron. Without taking into account these write-offs and charges, the
Company's net income and earnings per share in fiscal 1996 would have been $15.1
million and $1.13, respectively.
On November 25, 1996, the Company acquired Fine Line for an aggregate of
223,321 Ordinary Shares in a transaction accounted for as pooling of interest.
The Company's prior financial statements were not restated because the financial
results of Fine Line did not have a material impact on the consolidated result.
On December 20, 1996, the Company acquired 40% of FICO for $5.2 million. Of
this, the Company paid $3 million in December 1996, accrued the $2.2 million
balance in the fourth quarter of fiscal 1997 and paid the $2.2 million balance
in June 1997. The Company also has an option to purchase the remaining 60%
interest of FICO in 1998 for a price that is dependent on the financial
performance of FICO for the period ending December 31, 1997.
On March 27, 1997, the Company acquired the manufacturing facilities in
Karlskrona, Sweden and related inventory, equipment and assets from Ericsson for
approximately $82.4 million. The acquisition was financed by a bank loan and the
transaction has been accounted for under the purchase method. As a result, the
purchase price was allocated to the assets acquired based on their estimated
fair market values at the date of acquisition. See "Certain Factors Affecting
Future Operating Results -- Risks of Ericsson Transaction."
In the second quarter of fiscal 1997, the Company purchased approximately
32 acres of land in Guadalajara, Mexico. The land is intended to be used for the
Company's planned development of a new manufacturing campus in Mexico. In
addition, the Company has begun construction of a new 240,000 square foot
facility on its campus located in Doumen, China. During the third and fourth
quarters of fiscal 1997, the Company incurred plant closing expenses totalling
$5.9 million relating to the closing of its Texas facility and of the nCHIP
semiconductor fabrication facility, and the downsizing of manufacturing at its
Singapore facilities.
RECENT CHANGES IN ACCOUNTING FOR ASTRON ACQUISITION
The Company has restated its financial results for the fiscal year ended
March 31, 1996 and for the first three reported quarters of the fiscal year
ended March 31, 1997 to reflect revisions in its accounting for the acquisition
of Astron. These revisions include an increase in the initially recorded
purchase price to account for the payment to be made in June 1998 to an
affiliate of Stephen Rees, the former Chairman of Astron, as part of the
purchase price. In addition, a second appraisal was obtained and used to
allocate the purchase price to the assets acquired, including current assets,
net property, plant and equipment, developed technologies, In-process research
and development, assembled workforce, tradenames and trademarks, customer list
and other intangible assets. As a consequence, In-process research and
development written off in the fiscal year ended March 31, 1997 (the "In-Process
R&D") was reduced from $31,600,000 to $29,000,000 and the fair value of other
assets recorded at the date of the close of the transaction was increased by
$16.6 million, representing $4.7 million of goodwill and $11.9 million as
identified intangible assets. See Note 14 of Notes to Consolidated
18
<PAGE> 19
Financial Statements. The effect on the Company's reported statement of
operations and balance sheet is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED DECEMBER 31, 1996
FISCAL YEAR ENDED MARCH 31, 1996
-------------------------------- -----------------------------------
PREVIOUSLY REPORTED REVISED PREVIOUSLY REPORTED REVISED
------------------- -------- ------------------- -----------
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Gross profit...................... $ 41,889 $ 40,889 $36,437 $36,057
Operating income (loss)........... (11,775) (9,435) 14,152 12,656
Net income (loss)................. (17,412) (15,132) 10,536 9,026
Net income (loss) per share....... (1.39) (1.19) 0.73 0.61
Weighted average Ordinary Shares
and equivalents................. 12,536 12,684 14,377 14,889
</TABLE>
The Company is engaged in ongoing discussions with the staff of the
Securities and Exchange Commission (the "Commission") concerning its revised
accounting for the Astron acquisition. Because these discussions are continuing,
the Company's accounting for this acquisition, and related disclosures, are
subject to modification. Among other things, (i) the Company has determined that
certain of Astron's intangible assets, having an aggregate book value of $9.3
million at the time of the acquisition, should be amortized over useful lives of
20-25 years, and the staff of the Commission has questioned the length of this
period; (ii) the staff of the Commission has questioned whether the $1.0 million
reduction, agreed to on March 27, 1997, in the amount due to an affiliate of
Stephen Rees should be accounted for as an extinguishment of indebtedness (which
would be included in net income) rather than as a reduction in Astron's purchase
price (reducing goodwill) as is reflected in the Company's consolidated
financial statements included herein; (iii) the staff of the Commission has
requested that the Company disclose the amount of its historical research and
development expense, and (iv) the staff of the Commission has requested that the
Company disclose and discuss the material assumptions underlying the new
appraisal of certain intangible assets of Astron. The Company does not believe
that these issues, when resolved, will materially affect the amount of its
reported net income for fiscal 1996 or fiscal 1997.
19
<PAGE> 20
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statement of operations data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH
31,
-------------------------
1995 1996 1997
----- ----- -----
<S> <C> <C> <C>
Net sales........................................................... 100.0% 100.0% 100.0%
Cost of sales....................................................... 90.5 90.9 89.8
----- ----- -----
Gross profit........................................................ 9.5 9.1 10.2
Selling, general and administrative expenses........................ 4.9 4.2 5.9
Goodwill/intangible assets amortization............................. 0.3 0.2 0.5
Provision for plant closings........................................ -- 0.3 1.2
Bank arrangement fees and consultancy fees.......................... -- -- 0.4
Research and development............................................ -- 6.5 --
----- ----- -----
Operating income (loss)................................... 4.3 (2.1) 2.2
Interest expense and other, net..................................... 0.5 0.4 0.2
Merger expenses..................................................... 0.3 -- --
Income (loss) from associated company............................... (0.3) -- --
----- ----- -----
Income (loss) before income taxes......................... 3.2 (2.5) 2.0
Provision for income taxes.......................................... 0.6 0.9 0.5
Extraordinary gain.................................................. -- -- --
----- ----- -----
Net income (loss)......................................... 2.6% (3.4%) 1.5%
===== ===== =====
</TABLE>
NET SALES
Net sales in fiscal 1997 increased 9.6% to $491 million from $448 million
in fiscal 1996. This increase was primarily due to higher sales to existing
customers, including US Robotics, Microsoft, Advanced Fibre Communications and
Braun/Thermoscan, sales to new customers such as Cisco and Auspex, and the
inclusion of Astron's sales following its acquisition in February 1996. This
increase was partially offset by reduced sales to certain existing customers,
including Visioneer, Apple Computer, Houston Tracker Systems, Logitech, Voice
Powered Technology and Fast Multimedia. The Company believes that the reduction
in sales to these customers was due in part to reductions in these customers'
sales to end-users. See "Certain Factors Affecting Future Operating
Results -- Rapid Technological Change."
Net sales in fiscal 1996 increased 89% to $448 million from $237 million in
fiscal 1995. This increase was primarily the result of higher sales to existing
customers, including Lifescan (a Johnson & Johnson Company), Visioneer, Microcom
and Global Village Communications, sales to new customers in the computer and
medical industries such as Apple Computer and Thermoscan and the inclusion of
A&A's and Astron's sales after their acquisitions in April 1995 and February
1996, respectively. This was partially offset by a significant decline in sales
to IBM due to IBM's efforts to consolidate more of its manufacturing business
internally.
GROSS PROFIT
Gross profit varies from period to period and is affected by, among other
things, product mix, component costs, product life cycles, unit volumes, start
up, expansion and consolidation of manufacturing facilities and new product
introductions. Gross margin increased to 10.2% in fiscal 1997 compared to 9.1%
in fiscal 1996. The increase was mainly attributable to (i) the inclusion of
Astron's printed circuit board business, which has historically had a relatively
higher gross profit margin than the Company, (ii) the concentration of more
sales in the Company's facility in China which has a lower manufacturing cost
compared to the Company's facilities in other locations, and (iii) increased
sales, resulting in increased labor and overhead absorption. This benefit was
partially offset by underutilization of the nCHIP semiconductor fabrication
facility and the
20
<PAGE> 21
Company's Texas facility, which have been closed, and the related inventory
write-offs. Gross margin for fiscal 1998 may be adversely affected in the short
term as the Company commences production in new facilities.
Gross profit margin declined slightly to 9.1% in fiscal 1996 as compared to
9.5% in fiscal 1995 mainly due to the additional costs associated with new
manufacturing facilities in Texas and China that were opened in the fourth
quarter of fiscal 1995 and the expansion of nCHIP's semiconductor fabrication
facility. The decrease in gross profit margin was also attributable to a
reduction in certain selling prices in order to remain competitive.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses in fiscal 1997 increased to
$28.9 million from $18.8 million in fiscal 1996 and increased as percentage of
net sales to 5.9% in fiscal 1997 from 4.2% in fiscal 1996. The increase was
mainly due to the inclusion of Astron's selling and general administrative
expenses for fiscal 1997; a $3.2 million provision for doubtful debts (and
write-off of shares taken in payment of accounts receivable) relating to one
customer, Voice Powered Technology and increased sales and marketing expense.
Selling, general and administrative expenses in fiscal 1996 increased to
$18.8 million from $11.5 million in fiscal 1995, but decreased as percentage of
net sales to 4.2% in fiscal 1996 from 4.9% in fiscal 1995. The increase in
absolute dollars was principally due to costs associated with the expanded
facilities in China and Texas, increased sales personnel and market research
activities in U.S. and the inclusion of A&A's and Astron's selling and general
administrative expenses after their acquisitions in April 1995 and February
1996, respectively.
GOODWILL AND INTANGIBLE ASSETS AMORTIZATION
Goodwill, which represents the excess of the purchase price of an acquired
company over the fair market value of its net assets, and intangible assets are
amortized on a straight line basis over the estimated life of the benefits
received which range from three to twenty-five years. Goodwill amortization
increased from $739,000 in fiscal 1996 to $989,000 in fiscal 1997 and intangible
asset amortization increased from $544,000 in fiscal 1996 to $1,646,000 in
fiscal 1997. These increases were due to the amortization of additional goodwill
and intangible assets which arose from the Astron acquisition in 1996. In fiscal
1997, the Company recognized approximately $8.5 million of additional goodwill,
as a result of the Astron earnout payment of $6.25 million and the acquisition
of the 40% interest in FICO, partially offset by the effect of the $1.0 million
reduction in the payment due in June 1998 to an affiliate of Stephen Rees.
Goodwill amortization increased from $510,000 in fiscal 1995 to $739,000 in
fiscal 1996 primarily due to the goodwill from the Company's acquisition of A&A
and Astron. Intangible asset amortization increased from $245,000 in fiscal 1995
to $544,000 in fiscal 1996 primarily due to the acquisition of A&A and Astron.
PROVISION FOR PLANT CLOSINGS
The provision for plant closings of $5.9 million in fiscal 1997 consists of
$3.4 million relating to the closing of the Texas and nCHIP facilities and $2.5
million for the shift of manufacturing operations from Singapore to lower cost
manufacturing locations. These provisions include $3.3 million associated with
the write-off of obsolete equipment and $2.6 million for severance payments. The
Texas facility had been primarily dedicated to production for Global Village
Communications and Apple Computer, to whom the Company does not anticipate
making substantial sales in future periods.
The provision for plant closings of $1.3 million in fiscal 1996 was
associated with the write-off of certain obsolete equipment at one of the
Company's facilities in Malaysia and in Shekou, China. The provision for plant
closings were related to the Company ceasing its satellite receiver product line
in Malaysia and the closing of its manufacturing operations in Shekou, China.
Production from the Shekou facility has been moved to the Company's plant in
Xixiang, China.
21
<PAGE> 22
BANK COMMITMENT FEES AND CONSULTANCY FEES
During the quarter ending March 31, 1997, the Company obtained various
consulting services from BankBoston, N.A. (formerly, The First National Bank of
Boston) regarding various forms of financings and development of appropriate
financial models for fees totalling $719,000. In addition, during March, the
Company found it necessary, due to a delay in obtaining Securities and Exchange
Commission approval for its intended equity offering, to obtain a short term
funding commitment on an emergency basis, for which it paid $750,000, to support
its intended purchase of the Karlskrona Facilities. This commitment fee allowed
the Company to continue its negotiations with Ericsson and has been expensed in
the quarter. Funding for the acquisition of the Karlskrona Facilities and
general working capital was later obtained by the end of the quarter and
associated fees are amortized over the life of those debt instruments. The
Company also recorded $362,000 of consultancy fees in March 1997 for services
provided by a key employee of Ericsson in Sweden with respect to the Company's
acquisition of the Karlskrona Facilities.
RESEARCH AND DEVELOPMENT
Most of the research and development conducted by the Company is paid for
by customers and is therefore included in cost of sales. Other research and
development is conducted by the Company, but is not specifically identified, as
the Company believes such expenses are less than 1% of its total net sales.
In June 1997, the Company obtained an independent valuation of the value of
certain of the assets of Astron and the In-Process R&D as of the date of
Astron's acquisition. This valuation determined that the fair market value of
the In-Process R&D was $29.0 million. Accordingly, the Company wrote off $29.0
million of In-Process R&D in fiscal 1996. See " -- Recent Changes in Accounting
for Astron Acquisition."
INTEREST EXPENSE AND OTHER, NET
Interest expense and other, net decreased to $1.5 million in fiscal 1997
from $1.9 million in fiscal 1996 mainly due to an increase in the foreign
exchange gain from $872,000 in fiscal 1996 to $1,168,000 in fiscal 1997 and a
successful insurance claim of $898,000. This was partially offset by an increase
in interest expenses incurred in connection with additional indebtedness used to
finance working capital requirements, to finance acquisitions and to purchase
machinery and equipment for capacity expansion. The Company also recorded
approximately $363,000 of interest expense in fiscal 1997 related to the cash
portion of the Company's obligations to an affiliate of Stephen Rees, the former
chairman of Astron. The Company expects its interest expense to increase
substantially in the future due to the indebtedness incurred to finance the
acquisition of the Karlskrona Facilities.
Interest expense and other, net increased to $1.9 million in fiscal 1996
from $1.0 million in fiscal 1995. The increase reflects interest incurred in
connection with additional indebtedness used to finance the cash portion of the
A&A and Astron acquisitions, to purchase machinery and equipment for capacity
expansion and to finance the Company's working capital requirements. The Company
has recorded an unrealized foreign exchange gain of $872,000 in fiscal 1996
compared to a foreign exchange loss of $303,000 in fiscal 1995 due to a weaker
Malaysian ringgit and Singapore dollar.
MERGER EXPENSES
The Company recorded a one-time non-operating charge of approximately
$816,000 as a result of the nCHIP acquisition in January 1995.
INCOME (LOSS) FROM ASSOCIATED COMPANY
The Company acquired 40% interest in FICO in December 1996. According to
the equity method of accounting, the Company previously did not recognize
revenue from sales by FICO, but based on its ownership interest recognized 40%
of the net income or loss of the associated company. In fiscal 1997, the Company
recorded its 40% share of the FICO's post acquisition net income, amounting to
$241,000.
22
<PAGE> 23
Flextracker, the joint venture with HTS in which the Company previously
owned a 49% interest, commenced operations in June 1993. According to the equity
method of accounting, the Company previously did not recognize revenue from
sales by Flextracker, but based on its ownership interest recognized 49% of the
net income or loss of the joint venture. Due to start-up costs and manufacturing
inefficiencies, the Company recognized a loss of $729,000 and $70,000 associated
with its interest in Flextracker in fiscal 1995 and fiscal 1994 respectively.
The Company initially contributed $2.5 million for a 49% interest in Flextracker
and HTS contributed $2.6 million for the remaining 51% interest. In April 1994
the Company and HTS each loaned $1 million to Flextracker. In December 1994, the
Company acquired all of the net assets of Flextracker (except the $1.0 million
loan made by HTS to Flextracker) for approximately $3.3 million.
PROVISION FOR INCOME TAXES
The Company is structured as a holding company, conducting its operations
through manufacturing and marketing subsidiaries in Singapore, Malaysia, Hong
Kong, Mauritius, China, the United Kingdom, Sweden and the United States. Each
of these subsidiaries is subject to taxation in the country in which it has been
formed. The Company's Asian manufacturing subsidiaries have at various times
been granted certain tax relief in each of these countries, resulting in lower
taxes than would otherwise be the case under ordinary tax rates. See Note 7 of
Notes to Consolidated Financial Statements.
The Company's consolidated effective tax rate for any given period is
calculated by dividing the aggregate taxes incurred by each of the operating
subsidiaries and the holding company by the Company's pre-tax income. Losses
incurred by any subsidiary or by the holding company are not deductible by the
entities incorporated in other countries in the calculation of their respective
local taxes. For example, the charge for the closing of the Texas facility in
fiscal 1997 was incurred by a U.S. subsidiary that did not have income against
which this charge could be offset. The ordinary corporate tax rates for calendar
1997 were 26%, 16.5% and 15% in Singapore, Hong Kong and China, respectively,
and 30% on manufacturing operations in Malaysia. In addition, the tax rate is de
minimis in Labuan, Malaysia and Mauritius where the Company's offshore marketing
and distribution subsidiaries are located. The Company's U.S. and U.K.
subsidiaries are subject to ordinary corporate tax rates of 35% and 33%
respectively. However, these tax rates did not have any material impact on the
Company's taxes in fiscal 1997 due to the losses of these two subsidiaries in
this period. The Company's Swedish subsidiary, which began operation on March
27, 1997 with the acquisition of the Karlskrona Facilities, will be subject to
an ordinary corporate tax rate of 28%.
The Company's consolidated effective tax rate was 22.9% in fiscal 1997. The
provision for plant closings of $1.3 million and the $29.0 million write-off of
In-Process R&D in fiscal 1996 resulted in aggregate net losses for that year,
but the Company incurred taxes on the profitable operations of certain of its
subsidiaries. If the provision for plant closings and In-Process R&D written off
are excluded from such calculation, the Company's fiscal 1996 effective tax rate
would have been 20%.
The Company has structured its operations in Asia in a manner designed to
maximize income in countries where tax incentives have been extended to
encourage foreign investment or where income tax rates are low. The Company's
Singapore subsidiary was granted an investment allowance incentive in respect of
approved fixed capital expenditures subject to certain conditions. These
allowances have been utilized to reduce its taxable income since fiscal 1991,
and were fully utilized at the end of fiscal 1996. 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 rate of 26%. The
Company's investments in its plants in Xixiang and Doumen, China fall under the
"Foreign Investment Scheme" which entitles the Company to apply for a five year
tax incentive. The Company obtained the tax incentive for the Doumen plant in
December 1995 and the Xixiang plant in October 1996. With the approval, the
Company's tax rates on income from these facilities during the incentive period
will be 0% in years 1 and 2 and 7.5% in years 3 through 5, commencing in the
first profitable year. In fiscal 1993, the Company transferred its offshore
marketing and distribution functions to a newly formed marketing subsidiary
located in Labuan, Malaysia, where the tax rate is de minimis. In February 1996,
the Company transferred Astron's sales and marketing business to a newly formed
subsidiary in Mauritius, where the tax rate is 0%. The Company's Malaysian
manufacturing subsidiary has obtained a five year pioneer
23
<PAGE> 24
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 were
to challenge successfully the manner in which profits are recognized among the
Company's subsidiaries, the Company's worldwide effective tax rate would
increase and its results of operations and cash flow would be adversely
affected. Substantially all of the products manufactured by the Company's Asian
subsidiaries are sold to U.S. based customers. While the Company believes that
profits from its Asian operations are not sufficiently connected to the U.S. to
give rise to U.S. federal or state income taxation, there can be no assurance
that U.S. tax authorities will not challenge the Company's position or, if such
challenge is made, that the Company will prevail in any such disagreement. If
the Company's Asian profits became subject to U.S. income taxes, the Company's
taxes would increase and its results of operations and cash flow would be
adversely affected. In addition, the expansion by the Company of its operations
in North America and Northern Europe may increase its worldwide effective tax
rate.
VARIABILITY OF RESULTS
The Company has experienced, and expects to continue to experience,
significant periodic and quarterly fluctuations in the Company's results of
operations due to a variety of factors. These factors include, among other
things, timing of orders, volume of orders relative to the Company's capacity,
customers' announcement and introduction and market acceptance of new products
or new generations of products, evolutions in the life cycles of customers'
products, timing of expenditures in anticipation of future orders, effectiveness
in managing manufacturing processes, changes in cost and availability of labor
and components, 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 reduced production levels in Sweden in July, and the reduction in orders
by certain customers in the fourth quarter reflecting a seasonal slowdown
following the Christmas holiday. The market segments served by the Company are
also subject to economic cycles and have in the past experienced, and are likely
in the future to experience, recessionary periods. A recessionary period
affecting the industry segments served by the Company could have a material
adverse effect on the Company's results of operations. Results of operations in
any period should not be considered indicative of the results to be expected for
any future period, and fluctuations in operating results may also result in
fluctuations in the price of the Company's Ordinary Shares. In future, periods,
the Company's 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations from the proceeds of public offerings
of equity securities, cash generated from operations, bank debt and lease
financing of capital equipment. In March 1997, the Company terminated the $48.0
million line of credit from several banks and obtained a new $175.0 million
credit facility from BankBoston, N.A. At March 31, 1997 the Company had cash
balances totaling $23.6 million, outstanding bank borrowings of $111 million,
and an aggregate of $64.0 million available for borrowing under the New Credit
Facilities.
Cash provided by operating activities in fiscal 1997 was $46.7 million,
consisting primarily of net income, depreciation, provision for plant closing
and decreases in accounts receivable.
Cash used for operating activities in fiscal 1996 was $710,000, consisting
primarily of net profit of $15.1 million (excluding In-Process R&D written off
and provision for plant closings), depreciation,
24
<PAGE> 25
amortization and allowance for doubtful debt and obsolescence. Cash used for
operating activities was primarily comprised of increases in accounts receivable
and inventories reflecting higher sales in fiscal 1996.
Accounts receivable, net of allowance for doubtful accounts, decreased to
$69.3 million at March 31, 1997 from $78.1 million at March 31, 1996. The
decrease in accounts receivable was primarily due to improved collection of
accounts receivable during fiscal 1997. Inventories increased to $106.6 million
at March 31, 1997 from $52.6 million at March 31, 1996. The increase in
inventories was mainly a result of the acquisition of the $55 million of
inventories at the Karlskrona Facilities. The Company's allowances for doubtful
accounts increased from $3.6 million at March 31, 1996 to $5.7 million at March
31, 1997. The Company allowance for inventory obsolescence increased to $6.2
million at March 31, 1997 from $4.6 million at March 31, 1996. The increases in
the allowances were due to the increases in sales and inventories during fiscal
1997 and the $3.2 million provision for doubtful debts, and write-off shares
taken in payment of receivables, related to one specific customer and inventory
exposure relating to the closing of the Texas facility.
Accounts receivable, net of allowance for doubtful accounts, increased to
$78.1 million at March 31, 1996 from $44.3 million at March 31, 1995 and
inventories increased to $52.6 million at March 31, 1996 from $30.2 million at
March 31, 1995. The increase in accounts receivable and inventories was mainly
due to the 89% increase in sales during fiscal 1996. The Company's allowances
for doubtful accounts increased from $1.8 million at March 31, 1995 to $3.6
million at March 31, 1996. The Company's allowance for inventory obsolescence
increased from $1.9 million at March 31, 1995 to $4.6 million at March 31, 1996.
The increases in the allowances were due to the increases in sales and
inventories during fiscal 1996 and the $1.0 million provision for inventory
exposure relating to the closing of the satellite receiver product line in one
of the Company's Malaysia plants.
Cash used for investing activities in fiscal 1997 was $112.0 million,
consisting primarily of $82.4 million for the acquisition of the Karlskrona
Facilities, and $27.0 million of expenditures for machinery and equipment in the
Company's, China, Mexico and California manufacturing facilities and $3.0
million cash paid in November for the 40% interest in FICO.
Cash used for investing activities in fiscal 1996 consisted primarily of
$15.8 million of expenditures for machinery and equipment in the Company's
Texas, China and California manufacturing facilities as well as payment of $15.2
million for the cash portion of the A&A and Astron acquisitions.
Net cash provided by financing activities in fiscal 1997 was $82.4 million,
consisting primarily of bank borrowings of $152.8 million and capital lease
financing. Cash used for financing activities in fiscal 1997 consisted primarily
of $56 million repayment to banks, $10.5 million repayment of notes to Astron's
ex-shareholders (part of purchase consideration) and $8 million repayment of
capital lease obligations.
Net cash provided by financing activities in fiscal 1996 was $31.6 million,
consisting primarily of $22.3 million from the sale of 1,000,000 newly issued
Ordinary Shares and net bank borrowings of $12.3 million.
On March 27, 1997 the Company entered into a new credit facility consisting
of two revolving credit and term loan agreements provided by the BankBoston,
N.A. as agent (together, the "New Credit Facility"). Under the New Credit
Facility, subject to compliance with certain financial ratios and the
satisfaction of customary borrowing conditions, the Company and its United
States subsidiary may borrow up to an aggregate of $175.0 million. The New
Credit Facility includes $105.0 million of revolving credit facilities and a
$70.0 million term loan facility. The revolving credit facilities are subject to
a borrowing base equal to 70% of consolidated accounts receivable and 20% of
consolidated inventory. As of March 31, 1997, $41.0 million of revolving credit
loans and $70.0 million of term loans were outstanding, and bore interest at a
variable rate equal, as of March 31, 1997, to approximately 8.4% per annum. The
term loan amortizes over a 5-year period and is subject to certain mandatory
prepayment provisions. Loans under the revolving credit facility will mature in
March 2000. Loans to the Company are guaranteed by certain of its subsidiaries
and loans to the Company's United States subsidiary are guaranteed by the
Company and by certain of the Company's subsidiaries. The New Credit Facility is
secured by a lien on substantially all accounts receivable and inventory of the
Company and its subsidiaries, as well as a pledge of the Company's shares in
certain of its
25
<PAGE> 26
subsidiaries. The New Credit Facility contains covenants and provisions that,
among other things, prohibit the Company and its subsidiaries from (i) incurring
additional indebtedness, except for subordinated debt evidenced by the
Subordinated Notes (as defined therein) in an aggregate principal amount of not
more than $150.0 million, certain purchase money debt and leases not to exceed
$25.0 million and certain subsidiary debt not to exceed $15.0 million; (ii)
incurring liens on their property (subject to certain exceptions); (iii) making
capital investments exceeding $65.0 million in fiscal 1998 and $25.0 million
annually thereafter; (iv) engaging in certain sales of assets; (v) making
acquisitions that do not meet certain criteria; and (vi) making certain other
investments. In addition, the New Credit Facility prohibits the payment of
dividends or other distributions by the Company to its shareholders.
The New Credit Facility also requires that the Company satisfy certain
financial covenants and tests on a consolidated basis which, among other things,
provide that the Company's: (i) Leverage ratio (the ratio of Total Debt to
EBITDA (each as defined therein)) must not exceed 4.25 : 1.00 (reducing to (2.75
: 1.00 by April 1, 1999), (ii) Interest Coverage Ratio (the ratio of EBITDA to
Consolidated Interest Expense (as defined therein)) must not exceed 3.00 : 1.0
(increasing to 4.00 : 1.00 by January 1, 1999), (iii) Fixed Charge Coverage
Ratio (the ratio of EBITDA to Fixed Charges (as defined therein)) must not
exceed 1.15 : 1.00 (increasing to 1.25 : 1.00 by April 1, 1999) and (iv)
Consolidated Tangible Net Worth (as defined therein) must not be less than (a)
95% of Consolidated Tangible Worth at March 31, 1997 plus (b) 75% of positive
Consolidated Net Income (as defined therein) plus (c) 100% of the proceeds of
any Equity Issuance (as defined therein).
The Company's capital expenditures in fourth quarter of fiscal 1997 were
approximately $9.1 million (excluding the purchase price for the Karlskrona
Facilities) and the Company anticipates that its capital expenditures in fiscal
1998 will be approximately $65.0 million, primarily relating to the development
of new and expanded facilities in San Jose, California, Guadalajara, Mexico and
Doumen, China. In addition, the Company expended cash in the fourth quarter of
fiscal 1997 and will be required to expend cash in fiscal 1998 pursuant to the
terms of the Astron acquisition. The Company will be required to make a
principal payment of $5.0 million in February 1998, pursuant to the terms of a
note issued by it in connection with the Astron acquisition and paid an earnout
of $6.25 million in cash in April 1997. The Company is also required to make a
$14.0 million payment to an entity affiliated with Stephen Rees in June 1998,
$5.0 million of this amount is payable in cash and $9.0 million is payable in
cash or, at the option of the Company, in Ordinary Shares, and the Company
intends to pay the $9.0 million portion in Ordinary Shares. The Company believes
that the existing cash balances, together with anticipated cash flow from
operations and amounts available under the New Credit Facility, will be
sufficient to fund its operations through fiscal 1998.
CERTAIN FACTORS AFFECTING FUTURE OPERATING RESULTS
The Company's future operating results will depend upon conditions in its
market that may affect demand for its services. The following factors, among
others, have in some cases affected, and in the future could affect, the
Company's actual results and could cause such results to differ materially from
those expressed in forward-looking statements made by the Company.
Risks Of Ericsson Transaction
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 requires optimizing production lines, separating
the Karlskrona Facilities' management information systems from those of
Ericsson, implementing new management information systems, implementing the
Company's operating systems, and assimilating and managing existing personnel.
See "-- 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 has increased and will
continue to increase the Company's expenses and working capital requirements,
and place burdens on the Company's management resources. In the event the
Company is unsuccessful in integrating these operations, the Company would be
materially adversely affected.
26
<PAGE> 27
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. The Company has no
experience operating in Sweden, 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, there
can be no assurance that the Company will not encounter difficulties in meeting
Ericsson's expectations as to product quality and timeliness. If Ericsson's
requirements exceed the volume anticipated by the Company, the Company may be
unable to meet these requirements on a timely basis. The Company's inability to
meet Ericsson's volume, quality, timeliness and cost requirements, and to
quickly resolve any 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 intends 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. There can be no assurances that the Company will utilize a
sufficient portion of the capacity of the Karlskrona Facilities to achieve
profitable operations. 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. Further, no assurances can be given as to the Company's ability to
expand manufacturing capacity at the Karlskrona Facilities.
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. In
addition, without Ericsson's consent, the Company may not enter into any
transactions that could adversely affect its ability to continue to supply
products and services to Ericsson under the Purchase Agreement or its ability to
reduce costs and prices to Ericsson. 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. As a result of these rights, Ericsson may, under
certain circumstances, retain a significant degree of control over the
Karlskrona Facilities and their management following the consummation of the
Ericsson Transaction. See "Business -- Acquisition of Karlskrona Facilities."
Increased Leverage
At March 31, 1997, the Company had consolidated indebtedness of
approximately $150.6 million (including bank borrowings, long-term debts and
capitalized lease obligations, and excluding $9.0 million of liabilities
relating to the Astron acquisition that may be repaid in cash or, at the option
of the Company, in the Company's Ordinary Shares). The Company's indebtedness as
of March 31, 1997 included borrowings under the New Credit Facility on March 27,
1997 of $111.0 million which substantially increased the Company's leverage. As
a result, the Company's ratio of indebtedness to shareholders equity
capitalization increased from approximately 88% at March 31, 1996 to 181% at
March 31, 1997. See "-- Liquidity and Capital Resources."
The degree to which the Company is leveraged could have important
consequences to the Company and its shareholders, including the following: (i)
the Company's ability to obtain additional financing in the future for working
capital, capital expenditures, product development, acquisitions or other
purposes may be limited or impaired; (ii) the Company's operating flexibility
with respect to certain matters will be limited by covenants that will limit the
ability of the Company and certain of its subsidiaries to incur additional
indebtedness, grant liens, pay dividends, redeem capital stock or prepay certain
subordinated indebtedness and enter into sale and leaseback transactions; and
(iii) the Company's degree of leverage may make it more vulnerable to economic
downturns, may limit its ability to pursue other business opportunities and may
reduce its flexibility in responding to changing business and economic
conditions. The Company's ability to generate
27
<PAGE> 28
cash for the repayment of debt will be dependent upon the future performance of
the Company's businesses, which will in turn be subject to financial, business,
economic and other factors affecting the business and operations of the Company,
including factors beyond its control, such as prevailing economic conditions.
The Company may seek growth through selective acquisitions, including
significant acquisitions. The Company could incur substantial additional
indebtedness in connection with a significant acquisition, in which event the
Company's leverage would be increased.
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 $491.0 million in fiscal 1997. 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 and fourth quarters
of fiscal 1997, the Company reported charges associated with the closure of its
manufacturing facilities in Texas, the downsizing of manufacturing operations in
Singapore 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.
28
<PAGE> 29
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 1997, the Company's five largest
customers accounted for approximately 46.0% of net sales. Approximately 13.3%
and 10.6% of the Company's net sales for fiscal 1997 were derived from sales to
Lifescan and U.S. Robotics, respectively. Flextronics anticipates that a small
number of customers will continue to account for a large portion of its net
sales as it focuses on strengthening and broadening relationships with leading
OEMs. The Company expects that sales to Ericsson will represent a significant
portion of its net sales.
The composition of the group comprising the Company's largest customers has
varied from year to year, and there can be no assurance that the Company's
principal customers will continue to purchase products and services from the
Company at current levels, if at all. For example, the Company expects that its
sales to Global Village Communications in fiscal 1998 will be materially lower
than in recent periods. Significant reductions in sales to any of these
customers, or the loss of one or more major customers, would have a material
adverse effect on the Company. The Company generally does not obtain firm
long-term volume purchase commitments from its customers, and over the past few
years has experienced reduced lead-times in customer orders. In addition,
customer contracts can be canceled and volume levels can be changed or delayed.
The timely replacement of canceled, delayed, or reduced contracts with new
business cannot be assured. These risks are exacerbated because a majority of
the Company's sales are to customers in the electronics industry, which is
subject to rapid technological change and product obsolescence. The factors
affecting the electronics industry in general, or any of the Company's major
customers in particular, could have a material adverse effect on the Company.
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.
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. 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 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
29
<PAGE> 30
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 and fourth quarters of fiscal
1997, the Company reported charges associated with the closure of its
manufacturing facilities in Texas, the termination of manufacturing operations
in Singapore 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 "-- 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.
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, including the Company,
have substantially expanded their manufacturing capacity by expanding their
facilities and adding new facilities. In the event of a decrease in overall
demand for contract manufacturing services, this increased capacity could result
in substantial pricing pressures, which could adversely affect the Company's
operating results. Certain of the Company's competitors, including Solectron
Corporation and SCI Systems, have substantially greater manufacturing,
financial, research and development and marketing resources than the Company.
The Company believes that the principal competitive factors in the segments of
the contract manufacturing industry in which it operates are cost, technological
capabilities, responsiveness and flexibility, delivery cycles, location of
facilities, product quality and range of services available. Failure to satisfy
any of the foregoing requirements could materially adversely affect the
Company's competitive position.
30
<PAGE> 31
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 "-- 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
Malaysia, China, the United States and the United Kingdom. In addition, the
Company has acquired substantial manufacturing operations in Sweden and is
developing a manufacturing campus in Mexico, countries in which the Company has
never manufactured products. The Company's revenue derived from operations
outside of the United States was $308 million in fiscal 1997, $116 million of
which was revenue derived from operations in China. 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 and
Mexico, where the Company is substantially expanding its operations, as well as
in Hong Kong, where the Company maintains certain administrative and procurement
operations.
Risks Relating to China. The Company's operations and assets are subject to
significant political, economic, legal and other uncertainties in China,
where the Company is substantially expanding its operations. Under its
current leadership, the Chinese government has been pursuing economic
reform policies, including the encouragement of foreign trade and
investment and greater economic decentralization. No assurance can be
given, however, that the Chinese government will continue to pursue such
policies, that such policies will be successful if pursued, or that such
policies will not be significantly altered from time to time. Despite
progress in developing its legal system, China does not have a
comprehensive and highly developed system of laws, particularly with
respect to foreign investment activities and foreign trade. Enforcement of
existing and future laws and contracts is uncertain, and implementation and
interpretation thereof may be inconsistent. As the Chinese legal system
develops, the promulgation of new laws, changes to existing laws and the
preemption of local regulations by national laws may adversely affect
foreign investors.
31
<PAGE> 32
The Company could also be adversely affected by the imposition of austerity
measures intended to reduce inflation, the inadequate development or
maintenance of infrastructure or the unavailability of adequate power and
water supplies, transportation, raw materials and parts, or a deterioration
of the general political, economic or social environment in China.
In addition, China currently enjoys Most Favored Nation ("MFN") status
granted by the United States, pursuant to which the United States imposes
the lowest applicable tariffs on Chinese exports to the United States. The
United States annually reconsiders the renewal of MFN trading status for
China. No assurance can be given that China's MFN status will be renewed in
the future years. China's loss of MFN status could adversely affect the
Company by increasing the cost to the U.S. customers of products
manufactured by the Company in China.
Risks Relating to Hong Kong. The Company's Hong Kong operations may be
influenced by the political situations in Hong Kong and by the general
state of the Hong Kong economy. On July 1, 1997, sovereignty over Hong Kong
was transferred from the United Kingdom to China, and Hong Kong will become
a Special Administrative Region ("SAR"). Based on current political
conditions and the Company's understanding of the Basic Law of the Hong
Kong SAR of China, the Company does not believe that the transfer of
sovereignty over Hong Kong will have a material adverse effect on the
Company. There can be no assurance, however, that changes in political,
legal or other conditions will not result in such an adverse effect.
Risks Relating to Mexico. The Mexican government exercises significant
influence over many aspects of the Mexican economy. Accordingly, the
actions of the Mexican government concerning the economy could have a
significant effect on private sector entities in general and the Company in
particular. In addition, during the 1980s, Mexico experienced periods of
slow or negative growth, high inflation, significant devaluations of the
peso and limited availability of foreign exchange. As a result of the
Company's planned expansion in Mexico, economic conditions in Mexico will
affect the Company.
Currency Fluctuations
While Flextronics transacts business predominantly in U.S. dollars and most
of its revenues are collected in U.S. dollars, a portion of Flextronics' costs
such as payroll, rent and indirect operation costs, are denominated in other
currencies such as Singapore dollars, Hong Kong dollars, Malaysian ringgit,
British pounds sterling and Chinese renminbis. Historically, fluctuations in
foreign currency exchange rates have not resulted in significant exchange losses
to the Company. After consummation of the Ericsson Transaction, the Company
expects that a significant portion of its business also will be conducted in
Swedish kronor. Changes in the relation of these and other currencies to the
U.S. dollar will affect the Company's cost of goods sold and operating margins
and could result in exchange losses. The impact of future exchange rate
fluctuations on the Company's results of operations cannot be accurately
predicted. The Company has historically not actively engaged in substantial
exchange rate hedging activities 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.
Over the last five years, the Chinese renminbi has experienced significant
devaluation against most major currencies. The establishment of the current
exchange rate system as of January 1, 1994 produced a significant devaluation of
the renminbi from $1.00 to Rmb 5.7 to approximately $1.00 to Rmb 8.7. The rates
at which exchanges of renminbi into U.S. dollars may take place in the future
may vary, and any material increase in the value of the renminbi relative to the
U.S. dollar would increase the Company's costs and expenses and therefore would
have a material adverse effect on the Company.
Limited Availability of Components
A substantial majority of the Company's net sales are derived from turnkey
manufacturing in which the Company is responsible for procuring materials, which
typically results in the Company bearing the risk of component price increases.
At various times there have been shortages of certain electronics components,
32
<PAGE> 33
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. Generally, the Company's employees are not bound by employment
or noncompetition agreements. The Company has entered into service and
noncompetition agreements with certain officers, including Ronny Nilsson,
Stephen Rees, Teo Buck Song, Michael McNamara, Goh Chan Peng and Tsui Sung Lam,
and provides its officers and key employees with stock options that are
structured to incentivize such employees to remain with the Company. However,
there can be no assurance as to the ability of the Company to retain its
officers and key employees. The loss of such personnel could have a material
adverse effect on the Company. 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 printed
circuit board 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.
Protection of Intellectual Property
The Company relies on a combination of patent, trade secret and trademark
laws, confidentiality procedures and contractual provisions to protect its
intellectual property. The Company seeks to protect certain of its technology
under trade secret laws, which afford only limited protection. There can be no
assurance that any of the Company's pending patent applications will be issued
or that intellectual property laws will protect the Company's intellectual
property rights. In addition, there can be no assurance that any patent issued
to the Company will not be challenged, invalidated or circumvented or that the
rights granted thereunder will provide competitive advantages to the Company.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to obtain and use information that the Company regards as
proprietary. Furthermore, there can be no assurance that others will not
independently develop similar technology or design around any patents issued to
the Company. Moreover, effective protection of intellectual property rights may
be unavailable or limited in certain foreign countries in which the Company
operates. In particular, the Company may be afforded only limited protection of
its intellectual property rights in China.
The Company may in the future be notified that it is infringing certain
patent or other intellectual property rights of others, although there are no
such pending lawsuits against the Company or unresolved notices that it is
infringing intellectual property rights of others. No assurance can be given
that in the event of
33
<PAGE> 34
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.
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.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by ITEM 8 is incorporated by reference herein from
Part IV, Item 14(a)(1) and (2).
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable
34
<PAGE> 35
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
EXECUTIVE OFFICERS
The names, ages and positions of the Company's Directors and officers as of
June 30, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------- --- ------------------------------------------------
<S> <C> <C>
Michael E. Marks 46 Chief Executive Officer and Director
Tsui Sung Lam 47 President, Asia Pacific Operations and Director
Robert R. B. 48 Senior Vice President of Finance and
Dykes Administration and Director
Ronny Nilsson 49 Senior Vice President, Europe
Goh Chan Peng 42 Senior Vice President of Finance and Operations,
Asia-Pacific
Teo Buck Song 40 Vice President, Purchasing, Asia Pacific
Michael McNamara 40 Vice President, President North American
Operations
Stephen J. L. 36 Senior Vice President, Worldwide Sales and
Rees Marketing and Director
Michael J. Moritz 42 Director
Richard L. Sharp 50 Director
Bernard J. 53 Director
Lacroute
</TABLE>
Michael E. Marks -- Mr. Marks has been the Company's Chief Executive
Officer since January 1994 and its Chairman of the Board since July 1993. He has
been a Director of the Company since December 1991. From November 1990 to
December 1993, Mr. Marks was President and Chief Executive Officer of Metcal,
Inc., a precision heating instrument company ("Metcal"). Mr. Marks received a
B.A. and M.A. from Oberlin College and an M.B.A. from the Harvard Business
School.
Tsui Sung Lam -- Mr. Tsui has been the Company's President, Asia-Pacific
since April 1997, and a Director since 1991. From January 1994 to April 1997, he
served as the Company's President and Chief Operating Officer. From June 1990 to
December 1993, he was the Company's Managing Director and Chief Executive
Officer. From 1982 to June 1990, Mr. Tsui served in various positions for
Flextronics, Inc., the Company's predecessor, including Vice President of Asian
Operations. Mr. Tsui received Diplomas in Production Engineering and Management
Studies from Hong Kong Polytechnic, and a Certificate in Industrial Engineering
from Hong Kong University.
Robert R. B. Dykes -- Mr. Dykes has served as a Director of the Company
since January 1994 and since February 1997, has served as its Senior Vice
President of Finance and Administration. Mr. Dykes was Executive Vice President,
Worldwide Operations and Chief Financial Officer of Symantec Corporation, an
application and system software products company, from 1988 to February 1997.
Mr. Dykes received a Bachelor of Commerce and Administration degree from
Victoria University in Wellington, New Zealand. Mr. Dykes is on the board of
directors of Symantec Corporation.
Ronny Nilsson -- Mr. Nilsson has served as the Company's Senior Vice
President, Europe since April 1997. From May 1995 to April 1997, he was Vice
President and General Manager, Supply & Distribution and Vice President,
Procurement, of Ericsson Business Networks where he was responsible for
facilities in Sweden, Austria, China, the Netherlands, Mexico and Australia.
From January 1991 to May 1995, he was Director of Production at the EVOX+RIFA
Group, a manufacturer of components, and Vice President of RIFA AB where he was
responsible for factories in Sweden, Finland, Singapore and Indonesia. Mr.
Nilsson received a certificate in Mechanical Engineering from the Lars Kagg
School in Kalmar, Sweden and certificates from the Swedish Management Institute
and the Ericsson Management Program.
Goh Chan Peng -- Mr. Goh has served as the Company's Chief Financial
Officer since July 1992 and as its Senior Vice President of Finance and
Operations, Asia-Pacific since April 1997. From June 1990 to
35
<PAGE> 36
July 1992, he was the Company's Director of Finance. From 1982 to June 1990, he
served in various financial capacities at Flex Holdings Pte Limited, the
predecessor to the Company, 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. He was Director of Purchasing at Flex Holdings Pte Limited, the
predecessor to the Company from 1988 to April 1994. From 1982 to 1988, he served
in various operational capacities at Flex Holdings Pte Limited, the predecessor
to the Company, 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, President
North American Operations since April 1994. From May 1993 to March 1994, he was
President and Chief Executive Officer of Relevant Industries, Inc., which was
acquired by the Company in March 1994. From May 1992 to May 1993, he was Vice
President, Manufacturing Operations at Anthem Electronics, an electronics
distributor. From April 1987 to May 1992, he was a Principal of Pittiglo, Rabin,
Todd & McGrath, an operations consulting firm. Mr. McNamara received a B.S. from
the University of Cincinnati and an M.B.A. from Santa Clara University.
Stephen J. L. Rees -- Mr. Rees has served as a Director of the Company
since April 1996, as Senior Vice President, Worldwide Sales and Marketing since
May 1997, and as Chairman and Chief Executive Officer of Astron since the
acquisition of Astron by the Company in February 1996. Mr. Rees has been
Chairman and Chief Executive Officer of Astron since November 1991. Mr. Rees
holds a B.A. in Finance from the City of London Business School and graduated in
Production Technology and Mechanical Engineering from the HTL St. Polten
Technical Institute in Austria.
Michael J. Moritz -- Mr. Moritz has served as a Director of the Company
since July 1993. Mr. Moritz has been a General Partner of Sequoia Capital, a
venture capital firm, since 1988. Mr. Moritz also serves as director of Yahoo,
Inc., Neomagic and several privately-held companies.
Richard L. Sharp -- Mr. Sharp has served as a Director of the Company since
July 1993. He 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 Fort James 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 several privately-held companies.
MANAGEMENT TEAM CHANGES
As of May 1, 1997 Stephen Rees, Chairman of Astron, has taken over
responsibility for world-wide sales and marketing and Dennis Stradford, formerly
responsible for world-wide sales and marketing, is now responsible for sales in
Europe. Tsui Sung Lam, formerly President and Chief Operating Officer, has
assumed responsibility for Asian operations, and Ronny Nilsson, formerly with
Ericsson, has assumed responsibility for European operations. Michael McNamara
remains responsible for North American operations. Robert Dykes, a director, has
become an executive officer of the Company, with responsibility for finance,
information technology, legal and human resources and will assume the role of
Chief Financial Officer, previously held by Goh Chan Peng, who assumed
responsibility for finance, information technology and legal activities in Asia.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
Directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Ordinary Shares and other equity securities of the Company.
Additionally, Directors, officers and
36
<PAGE> 37
greater than ten-percent shareholders are required by Securities and Exchange
Commission regulations to furnish the Company with copies of all Section 16(a)
reports they file.
Based solely upon review of the copies of such reports furnished to the
Company and written representations that no other reports were required, the
Company believes that there was compliance for the year ended March 31, 1997
with all Section 16(a) filing requirements applicable to the Company's
Directors, officers and greater than ten-percent (10%) beneficial owners.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth all compensation awarded, earned or paid for
services rendered in all capacities to the Company and its subsidiaries during
each of fiscal 1995, 1996 and 1997 to the Company's Chief Executive Officer and
the Company's four other most highly compensated executive officers who were
serving as executive officers at the end of fiscal 1997 (the "Named Executive
Officers"). See "Item 10 -- Directors and Executive Officers of the
Registrant -- Management Team Changes." This information includes the dollar
values of base salaries, bonus awards, the number of shares subject to stock
options granted and certain other compensation, if any, whether paid or
deferred. The Company does not grant stock appreciation rights (except as noted
in footnote (1) in the Option Grants in Fiscal 1997 table) and has no long-term
compensation benefits other than the stock options.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------
-------------------------------------------- SECURITIES
FISCAL OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS
- ------------------------------------------------- --------- --------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Michael E. Marks........................... 1997 $ 300,000 $ 80,400 $ 242,403(1) 250,000
Chairman of the Board and Chief 1996 $ 275,000 $ 132,500 $ 19,188(2) 150,000
Executive Officer 1995 $ 250,000 $ 45,750 $ 16,374(3) 25,000
Tsui Sung Lam.............................. 1997 $ 256,791 $ 87,180 $ 28,757(4) 20,000
President Asia-Pacific Operations 1996 $ 249,176 $ 143,313 $ 39,988(5) 40,000
1995 $ 216,028 $ 67,533 $ 18,288(6) --
Michael McNamara........................... 1997 $ 199,999 $ 30,642 $ 16,495(7) 21,000
Vice President, President of U.S. 1996 $ 173,250 $ 53,626 $ 11,778(8) 15,000
Operations 1995 $ 165,000 $ 15,468 $ 6,600(9) --
Dennis Stradford........................... 1997 $ 191,100 $ 33,634 $ 15,490(11) --
Senior Vice President, Sales and 1996 $ 191,100 $ 65,066 $ 21,835(12) 13,000
Marketing (10) 1995 $ 182,000 $ 45,018 $ 16,000(13) --
Goh Chan Peng.............................. 1997 $ 174,283 $ 44,870 $ 24,449(14) 16,000
Senior Vice President of Finance 1996 $ 163,718 $ 65,976 $ 24,217(15) 15,000
and Operations, Asia-Pacific 1995 $ 134,193 $ 49,544 $ 14,122(16) --
</TABLE>
- ---------------
(1) Includes an auto allowance of $7,712, Company contributions to the
Company's 401(k) plan of $4,750, life and disability insurance premium
payments of $3,601, forgiveness of a promissory note due to the Company of
$200,000 and forgiveness of interest payment of $26,340 on the promissory
note.
(2) Includes an auto allowance of $8,978, Company contributions to the
Company's 401(k) plan of $4,370 and life and disability insurance premium
payments of $5,839.
(3) Includes an auto allowance of $7,204, Company contributions to the
Company's 401(k) plan of $4,520 and life insurance premium payments of
$4,650.
(4) Includes life insurance payments of $736 and Company contributions to the
Central Provident Fund of $28,021. The Central Provident Fund is a
Singapore statutory savings plan to which contributions may be made to
provide for employees' retirement.
(5) Includes life insurance payments of $736 and Company contributions to the
Central Provident Fund of $39,252.
37
<PAGE> 38
(6) Includes life insurance premium payments of $671 and Company contributions
to the Central Provident Fund of $17,617.
(7) Includes an auto allowance of $7,200, Company contributions to the
Company's 401(k) plan of $3,958 and forgiveness of $5,337 interest payment
due on a promissory note payable to the Company.
(8) Represents an auto allowance of $11,778.
(9) Represents an auto allowance of $6,600.
(10) Mr. Stradford was the Company's Vice President, Sales and Marketing through
April 1997.
(11) Includes an auto allowance of $7,200, Company contributions to the
Company's 401(k) plan of $4,750 and life insurance premium payments of
$3,540.
(12) Includes an auto allowance of $7,200, Company contributions to the
Company's 401(k) plan of $3,832, life insurance premium payments of $5,587
and a travel allowance of $5,216.
(13) Includes an auto allowance of $7,200, Company contributions to the
Company's 401(k) plan of $5,460 and life insurance premium payments of
$3,340.
(14) Includes life insurance payments of $736 and Company contributions to the
Central Provident Fund of $23,713.
(15) Includes life insurance premium payments of $736 and Company contributions
to the Central Provident Fund of $23,481.
(16) Includes life insurance premium payments of $671 and Company contributions
to the Central Provident Fund of $13,451.
The following table sets forth further information regarding option grants
during fiscal 1997 to each of the Named Executive Officers. All options were
granted pursuant to the Company's 1993 Share Option Plan. In accordance with the
rules of the Securities and Exchange Commission, the table sets forth the
hypothetical gains or "option spreads" that would exist for the options at the
end of their respective ten-year terms. These gains are based on assumed rates
of annual compound stock price appreciation of 5.0% and 10.0% from the date the
option was granted to the end of the option term.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
AT ASSUMED ANNUAL RATES
NUMBER OF PERCENTAGE OF OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES IN PRICE EXPIRATION -------------------------
NAME GRANTED(1) 1996 PER SHARE(2) DATE 5% 10%
- ------------------------- --------- ------------- ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Marks......... 250,000 34.7% $ 23.125 11/08/01 $1,597,244 $3,529,511
Tsui Sung Lam............ 20,000 2.8% $ 23.125 11/08/01 127,780 282,361
Michael McNamara......... 1,000 0.1% $ 19.75 08/27/01 5,457 12,058
20,000 2.1% $ 23.125 11/08/01 127,780 282,361
Dennis P. Stradford...... -- -- -- -- -- --
Goh Chan Peng............ 1,000 0.1% $ 19.75 08/27/01 5,457 12,058
15,000 2.1% $ 23.125 11/08/01 95,835 211,771
</TABLE>
- ---------------
(1) The options shown in the table were granted at fair market value, are
incentive stock options and will expire five years from the date of grant,
subject to earlier termination upon termination of the optionee's
employment. The options become exercisable over a four-year period, with
25.0% of the shares vesting on the first anniversary of the date of grant
and thereafter 1/36th of the shares vesting for each full calendar month
that an optionee renders services to the Company. All of the options shown
in the table will become immediately exercisable for all of the option
shares in the event the Company is acquired by merger or sale of
substantially all of the Company's assets or outstanding Ordinary shares,
unless the options are assumed or otherwise replaced by the acquiring
entity. The Compensation Committee has authority to provide for the
acceleration of each option in connection with certain hostile tender offers
or proxy contests for Board membership. Each option includes a limited stock
appreciation right pursuant to
38
<PAGE> 39
which the option will automatically be canceled upon the occurrence of
certain hostile tender offers, in return for a cash distribution from the
Company based on the tender offer price per share. The options have a
maximum term of five years, subject to earlier termination following a
specified period after the optionee's termination of employment with the
Company. In the case of Messrs. Tsui and Goh, all of the options shown in
the table will become immediately exercisable in the event of termination of
employment for any reason.
(2) The exercise price of the option may be paid in cash or through a cashless
exercise procedure involving a same-day sale of the purchased shares. The
Compensation Committee has the authority to reprice outstanding options
through the cancellation of those options and the grant of replacement
options with an exercise price equal to the lower fair market value of the
option shares on the regrant date.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5.0% and 10.0% rates of share price appreciation are mandated by rules of
the Securities and Exchange Commission and do not represent the Company's
estimate or projection of future Ordinary Share prices.
The following table sets forth certain information concerning the exercise
of options by each of the Named Executive Officers during fiscal 1997, including
the aggregate amount of gains on the date of exercise. In addition, the table
includes the number of shares covered by both exercisable and unexercisable
stock options as of March 31, 1997. Also reported are values of "in-the-money"
options that represent the positive spread between the respective exercise
prices of outstanding stock options and $19.875 per share, which was the closing
price of the Company's Common Stock as reported on the Nasdaq National Market on
March 31, 1997, the last day of trading for fiscal 1997.
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END(2) FISCAL YEAR-END(2)
ACQUIRED ON VALUE ---------------------------- ----------------------------
NAME EXERCISE(1) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------ ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Marks........ 10,000 286,700 132,002 349,998 1,196,977 692,213
Tsui Sung Lam........... 10,000 310,800 63,355 43,645 830,253 150,482
Michael McNamara........ -- -- 30,418 35,582 403,468 114,257
Dennis P. Stradford..... 16,000 416,648 6,105 6,895 44,970 52,915
Goh Chan Peng........... -- -- 35,230 27,770 502,256 70,529
</TABLE>
- ---------------
(1) "Value Realized" represents the fair market value of the shares of Common
Stock underlying the option on the date of exercise less the aggregate
exercise price of the option.
(2) These values, unlike the amounts set forth in the column entitled "Value
Realized," have not been, and may never be, realized and are based on the
positive spread between the respective exercise prices of outstanding
options and the closing price of the Company's Common Stock on March 31,
1997, the last day of trading for fiscal 1997.
DIRECTOR REMUNERATION
Each non-employee Director who does not reside in Singapore receives stock
options pursuant to the automatic option grant provisions of the Company's 1993
Share Option Plan. Pursuant to the 1993 Share Option Plan, Richard L. Sharp,
Bernard J. Lacroute, Robert Dykes and Michael J. Moritz each received option
grants for 3,000 Ordinary Shares in fiscal 1997. In addition, all Directors
receive reimbursement of reasonable out-of-pocket expenses incurred in
connection with meetings of the Board of Directors. No Director who is an
employee of the Company receives compensation for services rendered as a
Director.
39
<PAGE> 40
EMPLOYMENT AND CONSULTING AGREEMENTS
In July 1993, the Company entered into employment agreements with Messrs.
Tsui and Goh. Under these agreements, Messrs. Tsui and Goh were entitled to
receive an annual salary of S$344,539, and S$207,103, respectively. In April
1997, the Compensation Committee increased the base salaries of Messrs. Tsui and
Goh to S$429,000 and S$304,499, respectively. The Company entered into a revised
employment agreement with Messrs. Tsui and Goh as President, Asia Pacific and
Senior Vice President of Finance and Operations, Asia Pacific, respectively,
effective April 1, 1997. Pursuant to the new employment agreements, the
employment of Messrs. Tsui and Goh will continue until either the Company or the
employee gives the other 12 months notice of termination (or pays the other 12
months' base salary in lieu of notice). The Company is required to pay one month
salary for each year of employment by Messrs. Tsui and Goh upon termination of
their respective employment by the Company. The Company also agreed that upon
termination of employment of Mr. Tsui or Mr. Goh for any reason, any options to
purchase Ordinary Shares then held by them would immediately vest and become
executed for all of the shares subject to such option.
The Company entered into an Employment and Noncompetition Agreement with
Mr. Ronny Nilsson dated as of April 30, 1997 in which Mr. Nilsson become an
executive officer of the Company. See "Certain Relationships and Related
Transactions.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information known to the Company
regarding beneficial ownership of the Company's Ordinary Shares as of June 30,
1997 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 year 1997, (ii) all executive officers and Directors as a
group, and (iii) each person who is known by the Company to own beneficially
more than 5.0% 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>
NUMBER OF SHARES
NAME AND ADDRESS OF BENEFICIAL OWNER BENEFICIALLY OWNED(1) PERCENT(2)
- ----------------------------------------------------------------- --------------------- ----------
<S> <C> <C>
Ronald Baron(3).................................................. 1,931,600 14.05%
c/o Baron Capital Management, Inc.
767 Fifth Avenue, 24th Floor
New York, New York 10153
Sequoia Capital(4)............................................... 953,443 6.92%
3000 Sand Hill Road
Building 4, Suite 280
Menlo Park, California 94025
The Capital Group Companies(5)................................... 781,500 5.68%
333 South Hope Street
Los Angeles, California 90071
Richard L. Sharp(6).............................................. 948,019 6.89%
c/o Circuit City Stores, Inc.
9950 Mayland Drive
Richmond, Virginia 23233
Michael E. Marks(7).............................................. 384,551 2.80%
Tsui Sung Lam(8)................................................. 56,878 *
Michael McNamara(9).............................................. 35,356 *
Dennis P. Stradford(10).......................................... 46,925 *
Goh Chan Peng(11)................................................ 21,604 *
Robert R.B. Dykes(12)............................................ 37,899 *
Bernard J. Lacroute(13).......................................... 62,730 *
Michael Moritz(14)............................................... 953,443 6.92%
Stephen J.L. Rees(15)............................................ 61,255 *
All directors and executive officers as a group (10
persons)(16)................................................... 2,608,630 18.41%
</TABLE>
40
<PAGE> 41
- ---------------
* Less than 1.0%.
(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 after June 30, 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 13,752,293 outstanding Ordinary Shares
as of June 30, 1997.
(3) Based on information supplied by Mr. Baron in a Schedule 13D filed with the
Securities and Exchange Commission on January 26, 1997. Includes 205,000
shares held by Baron Capital Partners, L.P. and Baron Investment Partners,
L.P., of which Mr. Baron is a general partner. Mr. Baron may be deemed to
have sole power to vote and direct the disposition of such shares. Also
includes 1,465,000 shares held by Baron Asset Fund and Baron Growth &
Income Fund, which are advised by BAMCO, Inc., and 261,600 shares held by
investment advisory clients of Baron Capital Management, Inc. BAMCO, Inc.
and Baron Capital Management, Inc. are controlled by Mr. Baron, and Mr.
Baron may be deemed to share power to vote and dispose of such shares.
(4) Includes 788,985 shares held by Sequoia Capital Growth Fund, a limited
partnership, 50,291 shares held by Sequoia Technology Partners III, a
limited partnership, 80,167 shares held by Sequoia Capital VII, a limited
partnership, 3,900 shares held by Sequoia Technology Partners VII, a
limited partnership and 2,600 shares held by Sequoia 1995, a limited
corporation. 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. The general partner of Sequoia Capital VII and Sequoia Technology
Partners VII is Sequoia Capital VII-A Management, LLC. The general partners
of Sequoia Capital VII-A Management, LLC are Mr. Moritz, Douglas Leone,
Mark Stevens, Thomas Stephenson and J. Thomas McMurray. Also includes
27,500 shares subject to options exercisable within 60 days after June 30,
1997 held by Mr. Moritz.
(5) Includes 781,500 shares beneficially owned by Capital Research and
Management Company.
(6) 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 37,500 shares
subject to options exercisable within 60 days after June 30, 1997 held by
Mr. Sharp.
(7) Includes 158,044 shares subject to options exercisable within 60 days after
June 30, 1997 held by Mr. Marks.
(8) Includes 37,803 shares subject to options exercisable within 60 days after
June 30, 1997 held by Mr. Tsui.
(9) Includes 35,356 shares subject to options exercisable within 60 days after
June 30, 1997 held by Mr. McNamara.
(10) Includes 1,842 shares held in an IRA rollover account. Also includes 8,083
shares subject to options exercisable within 60 days after June 30, 1997
held by Mr. Stradford.
(11) Includes 21,604 shares subject to options exercisable within 60 days after
June 30, 1997 held by Mr. Goh.
41
<PAGE> 42
(12) Includes 37,500 shares subject to options exercisable within 60 days after
June 30, 1997 held by Mr. Dykes.
(13) Includes 14,503 shares held by KPCB Zaibatsu Fund I. KPCB IV Associates,
L.P., of which Mr. Lacroute is a limited partner, is the general partner of
KPCB Zaibatsu Fund I. Mr. Lacroute disclaims beneficial ownership of such
shares. Also includes 10,727 shares held by the Bernard and Ronni Lacroute
Trust and 37,500 shares subject to options exercisable within 60 days after
June 30, 1997 held by Mr. Lacroute.
(14) Includes 788,985 shares held by Sequoia Capital Growth Fund, a limited
partnership, 50,291 shares held by Sequoia Technology Partners III, a
limited partnership, 80,167 shares held by Sequoia Capital VII, a limited
partnership, 3,900 shares held by Sequoia Technology Partners VII, a
limited partnership and 2,600 shares held by Sequoia 1995, a limited
corporation. 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. The general partner of Sequoia Capital VII and Sequoia Technology
Partners VII is Sequoia Capital VII-A Management, LLC. The general partners
of Sequoia Capital VII-A Management, LLC are Mr. Moritz, Douglas Leone,
Mark Stevens, Thomas Stephenson and J. Thomas McMurray. Also includes
27,500 shares subject to options exercisable within 60 days after June 30,
1997 held by Mr. Moritz.
(15) Also includes 3,754 shares held by Mrs. Janine Margaret Rees. Includes
20,208 shares subject to options exercisable within 60 days after June 30,
1997 held by Mr. Rees.
(16) Includes 421,098 shares subject to options exercisable within 60 days after
June 30, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In fiscal 1997, the Company had net sales of approximately $1.55 million to
Metcal, 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. The Company believes that sales made to
Metcal were made on terms no less favorable to the Company than those that could
have been obtained from third parties.
In fiscal 1997, the Company had net sales of approximately $38.1 million to
Global Village Communication. Mr. Moritz, a Director of the Company, is
affiliated with Sequoia Capital, which through its affiliates owns more than
10.0% of the outstanding shares of Global Village Communications. Mr. Moritz is
also a director of Global Village Communications. The Company believes that
sales made to Global Village were made on terms no less favorable to the Company
than those that could have been obtained from third parties.
In July 1993, the Company entered into employment agreements with Messrs.
Tsui and Goh. Under these agreements, Messrs. Tsui and Goh were entitled to
receive an annual salary of S$344,539, and S$207,103, respectively. In April
1997, the Compensation Committee increased the base salaries of Messrs. Tsui and
Goh to S$429,000 and S$304,499, respectively. The Company entered into a revised
employment agreement with Messrs. Tsui and Goh as President, Asia Pacific and
Senior Vice President of Finance and Operations, Asia Pacific, respectively,
effective April 1, 1997. Pursuant to the new employment agreements, the
employment of Messrs. Tsui and Goh will continue until either the Company or the
employee gives the other 12 months notice of termination (or pays the other 12
months' base salary in lieu of notice). The Company is required to pay one month
salary for each year of employment by Messrs. Tsui and Goh upon termination of
their respective employment by the Company. The Company also agreed that upon
termination of employment of Mr. Tsui or Mr. Goh for any reason, any options to
purchase Ordinary Shares then held by them would immediately vest and become
executed for all of the shares subject to such option.
In connection with the Company's acquisition of Astron, the Company entered
into a Services Agreement (the "Services Agreement") with Astron Technologies
Limited, a subsidiary of the Company
42
<PAGE> 43
("ATL") and Croton Technology Ltd., a company under the management and control
of Mr. Rees ("Croton"), and ATL entered into a Supplemental Services Agreement
(the "Supplemental Services Agreement") with Mr. Rees. Under the terms of the
Services Agreement, Mr. Rees acted as President of Astron, and Croton was
responsible for developing the business of Astron through June 1998. The
Services Agreement provided that Croton will receive (i) a payment of $15
million on June 30, 1998, $5 million of which was to be payable in cash and $10
million of which was to be payable in cash or the Ordinary Shares of the Company
at the option of the Company and (ii) an annual fee in the amount of $90,000.
Payment of the $15.0 million lump sum payment was conditioned upon, among other
things, Mr. Rees' continuing as Chairman of Astron through June 1998. The
Service Agreement was to terminate on June 30, 1998 but may be terminated for
cause under the terms described therein. Pursuant to the terms of the
Supplemental Services Agreement, Mr. Rees acted as Chairman of Astron and was
responsible for maintaining and developing the business of Astron, and, in
exchange, received an annual salary of $140,000. The Supplemental Services
Agreement was to terminate on June 30, 1998.
Effective March 27, 1997, the Company terminated the Services Agreement and
the Supplemental Services Agreement, and appointed Mr. Rees as the Company's
Senior Vice President-Worldwide Sales. In connection with this termination, the
amount of the payment due on June 30, 1998 was reduced from $15.0 million to
$14.0 million and the remaining conditions to the Company's payment of the fee
were removed. This amount remains payable in cash or, at the option of the
Company, in Ordinary Shares. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Overview."
In connection with the acquisition of the Karlskrona Facilities, the
Company and Mr. Nilsson entered into an Employment and Noncompetition Agreement
("Employment Agreement") and a Services Agreement, both dated as of April 30,
1997. Pursuant to the Employment Agreement, Mr. Nilsson (a) was appointed as the
Company's Senior Vice President, Europe for a four-year period, (b) receives an
annual salary of $250,000, and (c) is entitled to a bonus of up to 45.0% of his
annual salary upon the successful completion of certain performance criteria.
Pursuant to the Services Agreement, Mr. Nilsson is to perform management
consultation and guidance services to the Company in consideration of (a) an
aggregate of $775,000 to be paid between March 31, 1997 and April 15, 1998, and
(b) the issuance by the Company to Mr. Nilsson of an interest-free loan in the
amount of $415,000 to be repaid by Mr. Nilsson in two installments of $210,000
and $205,000 on September 15, 1997 and April 15, 1998, respectively.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
a) 1. FINANCIAL STATEMENTS
The following consolidated financial statements are submitted herewith:
-- Report of Independent Auditors
-- Consolidated Balance Sheets as of March 31, 1997, 1996 and 1995
-- Consolidated Statements of Operations for each of the three years in
the period ended March 31, 1997
-- Consolidated Statements of Shareholders' Equity for each of the three
years in the period ended March 31, 1997
-- Consolidated Statements of Cash Flows for each of the three years in
the period ended March 31, 1997
-- Notes to Consolidated Financial Statements
43
<PAGE> 44
2. Financial Statement Schedules
The following consolidated financial statement schedules for each of the
three years in the period ended March 31, 1997 are submitted herewith:
Schedule II: Valuation and Qualifying Accounts
Schedules not listed above have been omitted because they are not
applicable or required, or the information required to be set forth therein is
included in the Consolidated Financial Statements or Notes thereto.
b) REPORTS ON FORM 8-K
1. The Company's Current Report on Form 8-K filed with the Commission on
December 13, 1996.
2. The Company's Current Report on Form 8-K filed with the Commission on
March 12, 1997.
3. The Company's Current Report on Form 8-K/A filed with the Commission
on March 27, 1997.
c) EXHIBITS
See Exhibit Index.
44
<PAGE> 45
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Shareholders
Flextronics International Ltd.
We have audited the accompanying consolidated balance sheets of Flextronics
International Ltd as of March 31, 1996 and 1997, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
three years in the period ended March 31, 1997. Our audits also included the
financial statement schedule listed in the Index at Item 14(a). These financial
statements and schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedule based on our audits.
We conducted our audits in accordance with United States Generally Accepted
Auditing Standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Flextronics International Ltd at March 31, 1996 and 1997, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended March 31, 1997, in conformity with United States Generally Accepted
Accounting Principles. Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial statements taken as
a whole, presents fairly in all material respects the information set forth
therein.
As discussed in Note 14 of the notes to consolidated financial statements
the, 1996 financial statements have been restated to correct the Company's
accounting so for the acquisition of the Astron Group Limited to conform to
United States Generally Accepted Accounting Principles.
/s/ ERNST & YOUNG
ERNST & YOUNG
Singapore
July 31, 1997
45
<PAGE> 46
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996* 1997
-------- --------
<S> <C> <C>
CURRENT ASSETS:
Cash................................................................. $ 6,546 $ 23,645
Accounts receivable, net of allowance for doubtful accounts of $3,576
and $5,658 at March 31, 1996 and 1997 respectively................ 78,114 69,331
Inventories.......................................................... 52,637 106,583
Other current assets................................................. 3,827 10,361
Deferred income taxes................................................ 260 408
-------- --------
Total current assets................................................... 141,384 210,328
-------- --------
PROPERTY AND EQUIPMENT:
Machinery and equipment.............................................. 77,771 100,795
Building............................................................. 5,975 37,758
Leasehold improvements............................................... 15,491 14,584
-------- --------
99,237 153,137
Accumulated depreciation and amortization............................ (37,896) (42,172)
-------- --------
Net property and equipment............................................. 61,341 110,965
-------- --------
OTHER NON-CURRENT ASSETS:
Goodwill, net of accumulated amortization of $2,715 and $3,704, at
March 31, 1996 and 1997 respectively.............................. 13,407 20,865
Intangible assets, net of accumulated amortization of $850 and
$2,496, at March 31, 1996 and 1997 respectively................... 12,227 10,469
Deposits and other................................................... 580 1,812
Receivables from related party....................................... 2,085 2,554
Investment in associated company..................................... -- 2,241
-------- --------
Total other non-current assets....................................... 28,299 37,941
-------- --------
TOTAL ASSETS................................................. $231,024 $359,234
======== ========
</TABLE>
- ---------------
* Restated -- See Note 14
See accompanying notes.
46
<PAGE> 47
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996* 1997
-------- --------
<S> <C> <C>
CURRENT LIABILITIES:
Bank borrowings...................................................... $ 14,379 $111,075
Current portion of long-term debt.................................... 11,073 5,758
Current portion of capital lease.................................. 6,736 6,475
Accounts payable.................................................. 64,625 73,631
Accrued payroll................................................... 5,606 10,680
Other accrued liabilities......................................... 5,389 23,039
Income taxes payable.............................................. 2,775 4,171
Payables to associated company....................................... -- 546
-------- --------
Total current liabilities.............................................. 110,583 235,375
-------- --------
NON CURRENT LIABILITIES:
Notes payable to shareholders........................................ 686 223
Long-term debt, less current portion................................. 7,554 2,165
Other payable........................................................ 24,184 23,547
Capital lease, less current portion.................................. 10,120 10,137
Deferred income taxes................................................ 4,353 3,710
-------- --------
Total non-current liabilities.......................................... 46,897 39,782
-------- --------
Minority interests..................................................... 485 485
-------- --------
SHAREHOLDERS' EQUITY:
Ordinary Shares, S$.01 par value:
Authorized -- 100,000,000 shares at March 31, 1996 and 1997
Issued and outstanding -- 13,213,289 shares at March 31,1996 and
13,676,243 shares at March 31, 1997.............................. 85 88
Additional paid-in capital........................................ 93,634 95,570
Accumulated deficit............................................... (20,660) (12,066)
-------- --------
Total shareholders' equity............................................. 73,059 83,592
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $231,024 $359,234
======== ========
</TABLE>
- ---------------
* Restated -- See Note 14
See accompanying notes.
47
<PAGE> 48
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
----------------------------------
1995 1996* 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales.................................................. $237,386 $448,346 $490,585
Cost of sales.............................................. 214,865 407,457 440,448
-------- -------- --------
Gross profit............................................... 22,521 40,889 50,137
Selling, general and administrative expenses............... 11,468 18,787 28,884
Goodwill amortization...................................... 510 739 989
Intangible assets amortization............................. 245 544 1,646
Provision for plant closings............................... -- 1,254 5,868
Bank commitment and consultancy fees....................... -- -- 1,831
Acquired in-process research and development............... 91 29,000 --
-------- -------- --------
Operating income/(loss).................................... 10,207 (9,435) 10,919
Net interest expense....................................... (774) (2,380) (3,885)
Merger expenses............................................ (816) -- --
Foreign exchange gain/(loss)............................... (303) 872 1,168
Income/(loss) from associated company...................... (729) -- 241
Other income/(expense)..................................... 34 (398) 1,232
-------- -------- --------
Income/(loss) before income taxes.......................... 7,619 (11,341) 9,675
Provision for income taxes................................. 1,463 3,791 2,212
-------- -------- --------
Net income/(loss).......................................... $ 6,156 $(15,132) $ 7,463
======== ======== ========
Earnings per share:
Net income/(loss) per share................................ $0.51 $(1.19) $0.50
======== ======== ========
Weighted average outstanding Ordinary Shares and
equivalents.............................................. 12,103 12,684 14,877
======== ======== ========
</TABLE>
- ---------------
* Restated -- See Note 14
See accompanying notes.
48
<PAGE> 49
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
ORDINARY SHARES ADDITIONAL TOTAL
--------------- PAID-IN RETAINED SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1994...................... 11,304 $ 71 $ 57,430 $(10,798) $46,703
nCHIP fiscal year conversion................... -- -- -- (596) (596)
Issuance of Ordinary Shares.................... 300 2 925 -- 927
Expenses related to issuance of Ordinary
Shares....................................... -- -- (968) -- (968)
Net income for the year........................ -- -- -- 6,156 6,156
Transactions by pooled companies:
Issuance of common stock....................... -- -- 37 -- 37
Issuance of preference stock................... -- -- 5,458 -- 5,458
------ --- ------- -------- -------
BALANCE AT MARCH 31, 1995...................... 11,604 $ 73 $ 62,882 $ (5,238) $57,717
Issuance of Ordinary Shares for acquisition of
subsidiaries................................. 305 2 7,443 -- 7,445
Issuance of Ordinary Shares.................... 304 2 1,007 -- 1,009
Sale of shares for cash in public offering..... 1,000 8 23,492 -- 23,500
Expenses related to sale of shares for cash in
public offering.............................. -- -- (1,190) -- (1,190)
Currency translation adjustments............... -- -- -- (290) (290)
Net loss for the year.......................... -- -- -- (15,132) (15,132)
------ --- ------- -------- -------
BALANCE AT MARCH 31, 1996*..................... 13,213 $ 85 $ 93,634 $(20,660) $73,059
Issuance of Ordinary Shares and Options........ 240 2 1,740 -- 1,742
Currency translation adjustments............... -- -- -- 112 112
Net income for the year........................ -- -- -- 7,463 7,463
Issuance of common stock for Fine Line Printed
Circuit Design Inc........................... 223 1 196 1,019 1,216
------ --- ------- -------- -------
BALANCE AT MARCH 31, 1997...................... 13,676 $ 88 $ 95,570 $(12,066) $83,592
====== === ======= ======== =======
</TABLE>
- ---------------
* Restated -- See Note 14
See accompanying notes.
49
<PAGE> 50
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
-------------------------------
1995 1996* 1997
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income/(loss)........................................... $ 6,156 $(15,132) $ 7,463
Adjustments to reconcile net income to cash provided by
operating activities:
nCHIP fiscal year conversion............................. (596) -- --
Depreciation and amortization of equipment and leasehold
improvements........................................... 5,370 9,344 10,940
Amortization of goodwill................................. 510 739 989
Amortization of intangible assets........................ 245 544 1,646
Loss/(gain) on disposal of property and equipment........ 56 (121) (85)
Loss on disposal of investment........................... -- 266 --
Allowance for doubtful debts............................. 1,211 1,675 2,866
Allowance for stock obsolescence......................... 43 1,631 4,228
Loss/(income) from associated company.................... 729 -- (241)
In process research and development written off.......... -- 29,000 --
Provision for plant closure.............................. -- 1,254 5,308
Deferred income taxes.................................... 237 84 (791)
Amortisation of discount................................. -- 60 363
Issuance of non-employee stock options................... -- -- 380
-------- -------- ---------
13,961 29,344 33,066
Changes in operating assets and liabilities:
Trade accounts receivable................................ (15,057) (28,965) 7,007
Notes receivable......................................... -- (500) (586)
Inventories.............................................. (3,156) (19,209) (2,533)
Other accounts receivable................................ (2,430) 2,889 (5,678)
Deposits and other....................................... 311 (140) (1,208)
Accounts payable......................................... 2,995 14,143 7,991
Other accrued liabilities................................ (984) 607 6,666
Income taxes payable..................................... 9330 1,121 1,396
Amount due from associated company....................... -- -- 546
-------- -------- ---------
Cash provided by (used for) operating activities....... $ (3,427) $ (710) $ 46,667
-------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment......................... $ (7,536) $(15,812) $ (26,984)
Proceeds from sale of property and equipment................ 38 228 816
Intangibles arising from acquisition of subsidiaries........ (62) -- --
Investment in associated company............................ -- 886 (3,000)
Loan to joint venture....................................... (1,000) -- --
Redemption of preference shares in joint venture............ 1,730 -- --
Payment for business acquired, net of cash acquired......... (3,343) (15,152) --
Repayment of loan from related party........................ -- 815 --
Loan to related party....................................... -- -- (469)
Purchase of assets from Ericsson............................ -- -- (82,354)
-------- -------- ---------
Cash used for investing activities............................ (10,173) (29,035) (111,991)
-------- -------- ---------
</TABLE>
50
<PAGE> 51
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
MARCH 31,
1995 1996* 1997
-------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from banks....................................... 7,000 43,980 152,761
Repayments to banks......................................... (16,417) (31,700) (56,041)
Proceeds from long-term debt................................ -- 2,873 776
Repayment of long-term debt................................. (8) (1,070) (1,536)
Refinancing of lease assets................................. -- -- 3,509
Repayment of capital lease obligations...................... (4,310) (5,767) (7,991)
Proceeds from issuance of share capital..................... 5,454 1,009 1,362
Payments on notes payable................................... (2,535) (17) (10,463)
Proceeds from secondary listing............................. -- 22,310 --
-------- -------- ---------
Cash provided by/(used for) financing activities......... (10,816) 31,618 82,377
-------- -------- ---------
Increase (decrease) in cash and cash equivalents............ (24,416) 1,873 17,053
Effect of exchange rate changes on cash and cash
equivalents.............................................. -- (78) 46
Cash and cash equivalents at beginning of period............ 29,167 4,751 6,546
-------- -------- ---------
Cash and cash equivalents at end of period............... $ 4,751 $ 6,546 $ 23,645
======== ======== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for:
Interest................................................. $ 779 $ 2,482 $ 3,025
Income taxes............................................. 297 2,656 1,717
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Equipment acquired under capital lease obligations.......... 8,338 11,556 6,387
Purchase of subsidiaries financed by issuance of 66,908
ordinary shares valued at $14.019........................ -- 938 --
238,684 ordinary shares valued at $27.262................... -- 6,507 --
223,321 ordinary shares valued at $25.524................... -- -- 5,700
Promissory notes valued at $10 million payable in February
1997..................................................... -- 10,000 --
Promissory notes valued at $5 million payable in February
1998..................................................... -- 5,000 --
Ordinary Shares with a value of $10 million to be issued on
June 30, 1998............................................ -- 10,000 --
Cash and Ordinary Shares valued at $14.124 million to
Stephen Rees at the option of the Company due on June 30,
1998..................................................... -- 14,124 (1,000)
Contingent earnout of $6.25 million payable to Astron
shareholders in April 1997............................... -- -- 6,250
</TABLE>
- ---------------
* Restated -- See Note 14
See accompanying notes.
51
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
1. ORGANIZATION OF THE COMPANY
Flextronics International Ltd. was incorporated in the Republic of
Singapore on May 31, 1990 as Flex Holdings Pte Limited. The subsidiary companies
are located in Singapore, Malaysia, Hong Kong, the People's Republic of China,
United Kingdom, Mauritius, Sweden and the United States. The Company was
incorporated to acquire the Asian and certain U.S. operations of Flextronics
Inc. (the "Predecessor"). The Predecessor had been involved in contract
manufacturing operations in Singapore since 1982, Hong Kong since 1983 and the
People's Republic of China since 1987.
The Company provides advanced contract manufacturing services to
sophisticated original equipment manufacturers (OEMs) in the communications,
computer, consumer and medical electronics industries. Flextronics offers a full
range of services including product design, printed circuit board (PCB) assembly
and fabrication, material procurement, inventory management, final system
assembly and test, packaging and distribution.
The components, subassemblies and finished products manufactured by the
Company incorporate advanced interconnect, miniaturization and packaging
technologies such as SMT, MCM and COB technologies.
The Company's fiscal year-end is March 31. The Company follows accounting
policies which are in accordance with principles generally accepted in the
United States.
2. SUMMARY OF ACCOUNTING POLICIES
Basis of presentation
The accompanying consolidated financial statements include the accounts of
Flextronics International Ltd. and its subsidiaries (together "the Company"),
after elimination of all significant intercompany balances and transactions.
Investments in affiliates owned 20% or more and corporate joint ventures in
which the Company does not have control, but has the ability to exercise
significant management influence over operating and financial policies, are
accounted for by the equity method. Other securities and investments are
generally carried at cost.
All dollar amounts included in the financial statements and in the notes
herein are U.S. dollars unless designated as Singapore dollars (S$).
Foreign exchange
The Company, with the exception of certain subsidiaries, considers the U.S.
dollar as its functional currency. This is because the majority of the Company's
sales are billed and collected in U.S. dollars, and the majority of the
Company's purchases, such as raw materials, are invoiced and paid in U.S.
dollars.
Accordingly, transactions in currencies other than the functional currency
are measured and recorded in U.S. dollars using the exchange rate in effect at
the date of the transaction. At each balance sheet date, recorded monetary
balances that are denominated in currencies other than the functional currency
are adjusted to reflect the rate at the balance sheet date. All gains and losses
resulting from the remeasurement of accounts denominated in other than the
functional currency are reflected in the determination of net income in the year
in which they occur.
For inclusion in the consolidated financial statements, all assets and
liabilities of foreign subsidiaries having a functional currency other than the
U.S. dollar are translated into U.S. dollars at the exchange rate ruling at the
balance sheet date and the results of these foreign subsidiaries are translated
into U.S. dollars at the weighted average exchange rates for the period.
Exchange differences due to such currency translations are recorded in
shareholders' equity.
52
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
Cash and cash equivalents
For purposes of statement of cash flows, the Company considers highly
liquid investments with a maturity of three months or less when purchased to be
cash equivalents.
Property and equipment
Property and equipment is stated at cost. Depreciation and amortization are
provided on a straight-line basis over the estimated useful lives of the related
assets (two to fifty years).
Concentration of credit risk
The Company is a manufacturer of sophisticated electronics for original
equipment manufacturers engaged in the computer, medical, consumer and
communications industries. Financial instruments which potentially subject the
Company to concentration of credit risk are primarily accounts receivable and
cash equivalents. The Company performs ongoing credit evaluations of its
customers' financial conditions and, generally, requires no collateral from its
customers. The Company maintains cash and cash equivalents with various
financial institutions. These financial institutions are located in many
different geographic locations throughout the world.
The allowance for doubtful accounts the Company maintains is based upon the
expected collectibility of all accounts receivable.
Goodwill
Goodwill represents the excess of the purchase price of acquired companies
over the fair value of the net assets acquired. Goodwill is amortized on a
straight line basis over the estimated life of the benefits received which
ranges from ten to twenty-five years. On an annual basis, the Company evaluates
recorded goodwill for potential impairment against the current and estimated
future operating income before goodwill amortization of the businesses to which
the goodwill relates.
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
Cost
Balance at beginning of the year....................... $ 6,939 $16,122
Additions.............................................. 9,183 8,447
------ -------
Balance at end of the year............................. 16,122 24,569
------ -------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
Amortization
Balance at beginning of the year....................... $ 1,976 $ 2,715
Charge for the year.................................... 739 989
------- -------
Balance at end of the year............................. 2,715 3,704
------- -------
Net book value at end of the year........................ $13,407 $20,865
======= =======
</TABLE>
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
53
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
Intangible assets
Intangible assets comprise technical agreements, patents, trademarks,
developed technologies and identifiable intangible assets in a subsidiary's
assembled work force, its favourable lease and its customer list.
Technical agreements are being amortized on a straight line basis over
periods not exceeding five years. Patents and trademarks are being amortized on
a straight line basis over periods not exceeding twenty-five years. Purchased
developed technologies are being amortised on a straight line basis over periods
not exceeding seven years. The identifiable intangible assets in the
subsidiary's assembled work force, its favourable lease and its customer list
are amortized on a straight line basis over the estimated life of the benefits
received of three to twenty years.
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
Cost
Balance at beginning of the year..................... $ 933 $13,077
Additions............................................ 12,144 --
Written off during the year.......................... -- (112)
------- -------
Balance at end of the year........................... 13,077 12,965
------- -------
Amortization
Balance at beginning of the year..................... $ 306 $ 850
Charge for the year.................................. 544 1,646
------- -------
Balance at end of the year........................... 850 2,496
------- -------
Net book value at end of the year...................... $12,227 $10,469
======= =======
</TABLE>
Inventories
Inventories are stated at the lower of cost or market value. Cost is
comprised of direct materials on a firstin-first-out basis and in the case of
finished products and work-in-progress includes direct labor and attributable
production overheads based on normal levels of activity. The components of
inventories are as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1996 1997
------- --------
<S> <C> <C>
Raw materials......................................... $42,202 $ 70,384
Work-in-process....................................... 14,049 16,561
Finished goods........................................ 962 25,809
------- --------
57,213 112,754
Less: allowance for obsolescence...................... (4,576) (6,171)
------- --------
$52,637 $106,583
======= ========
</TABLE>
Revenue recognition
Revenue from product sales and services are recognized on delivery and
acceptance of the goods.
Associated companies
An associated company is a company, not being a subsidiary, in which the
Group has a long-term interest of not less than 20% of the equity and in whose
financial and operating policy decisions the Group exercises significant
influence.
54
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
The Group's share of the results of associated companies is included in the
consolidated statement of operations. Where the audited accounts are not
co-terminous with those of the Group, the share of profits is arrived at from
the last audited accounts.
Shares in associated companies are stated in the Company's balance sheet at
cost and equity in post-acquisition earnings/(losses). Provision is made for
other than temporary declines in values.
Income taxes
Income taxes have been provided using the liability method in accordance
with SFAS Statement No. 109, "Accounting for Income Taxes".
Stock based compensation
The Company has elected to follow APB opinion 25 "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its employee
options because, as discussed below (see note 9), the alternative fair value
accounting provided for under SFAS 123, "Accounting for Stock-Based
Compensation", requires use of option valuation models that were not developed
for use in valuing employee stock options. Under APB 25, because the exercise
price of the Company's stock options equals the market price of the underlying
stock on the date of grant, no compensation expense is recognised.
Research and Development Expenditure
Direct expenditure and related costs incurred in connection with product
research and development are paid by the Company's customers and are therefore
included in cost of sales. Other research and development expenditure incurred
are not specifically identified because such expenses are immaterial.
Net income per share
Net income per share is computed using the weighted average number of
Ordinary Shares and Ordinary Share equivalents outstanding during the respective
periods. Ordinary Share equivalents include Ordinary Shares issuable upon the
exercise of stock options (using the treasury stock method).
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method currently
used to compute earnings per share and to restate all prior periods. Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock options will be excluded. The impact is expected to result in an
increase in primary earnings per share for the years ended March 31, 1995 and
1997 to $0.54 and $0.52 per share, respectively. Statement 128 should have no
effect on primary loss per share for the year ended March 31, 1996. The impact
of Statement 128 on the calculation of fully diluted earnings per share for
these years is not expected to be material.
Financial statement prepared in accordance with accounting principles accepted
in Singapore
A separate financial statement for the same period has been prepared in
accordance with accounting principles accepted in Singapore.
3. BANK BORROWINGS
Line of Credit
In March 1997 the Company terminated its $48 million US Dollar line of
credit with the group of banks and obtained a new credit facility totalling $175
million representing $105 million revolving credit and
55
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
$70 million through term loans amortized over a 5 year period and subject to
mandatory prepayment provisions. As at March 31, 1997, the Company has utilized
$111 million of the new credit facility.
The lines of credits are collateralized by:
(a) A floating charge over all the assets and the entire undertaking of the
holding company;
(b) Corporate guarantees from the Company and several of its subsidiaries;
(c) First fixed charge over the securities and a pledge of the Company's
shares in certain of its subsidiaries;
(d) A lien on all accounts receivable and inventory of the Company and its
subsidiaries.
The new credit facilities require that the Company maintains certain
financial ratios and other covenants. In addition, the Company and its
subsidiaries are not allowed to declare dividends for distribution out of
retained earnings. As at March 31, 1997, the Company was in compliance with its
covenants.
In addition, five of the Company's subsidiaries have obtained from several
banks working capital lines of credit, totalling approximately US$10.3 million,
representing overdraft facilities, bridging loan, short term cash advances,
letters of credit and letters of guarantee and trust receipts. Interest on
borrowings is charged within the range 5.75% to 7% per annum.
As of March 31, 1997, the Group had utilized the following credit
facilities under the above lines of credit (in thousands):
<TABLE>
<S> <C>
Short term cash advances.......................................... $111,075
Letters of credits and guarantees................................. $ 985
========
</TABLE>
The remaining unused portion of lines of credit total $64 million.
<TABLE>
<CAPTION>
MARCH 31,
---------------
1996 1997
----- -----
<S> <C> <C>
The weighted average interest rate per annum on all short
term borrowings outstanding as at year end are as
follows:.................................................. 6.41% 8.50%
===== =====
</TABLE>
4. LONG TERM DEBT
Long-term debt consisted of the following at March 31, 1996 and 1997.
<TABLE>
<CAPTION>
MARCH 31,
--------------------
1996 1997
-------- -------
<S> <C> <C>
Term loan at 4.5%....................................... 333 83
Mortgage loans at 11.4%................................. 2,244 1,886
Other loans at 8% -- 9%................................. 1,050 954
Notes payable to Astron's former shareholders at 8%..... 15,000 5,000
-------- -------
18,627 7,923
Less: current portion................................... (11,073) (5,758)
-------- -------
$ 7,554 $ 2,165
======== =======
</TABLE>
Maturities of long-term debt for the five years succeeding March 31, 1997
are $5,758 by March 31, 1998, $469 by March 31, 1999, $469 by March 31, 2000,
$469 by March 31, 2001, $469 by March 31, 2002 and the balance thereafter.
The notes payable is payable to the former shareholders of Astron as part
of the purchase consideration.
56
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
5. OTHER PAYABLES
In accordance to the agreement signed to acquire Astron in February 1996,
the Company will issue Ordinary Shares with a value of $10 million to the former
Astron shareholders on June 30, 1998.
In addition the Company agreed to pay $15 million in June 1998 to an entity
affiliated with Stephen Rees as a consulting fee subject to certain conditions.
In March 1997, the agreement with Mr. Rees' affiliate was revised, the
conditions eliminated and the fee was reduced to $14 million. The cash portion
of $5 million has been discounted at 8% over the period of the agreement and the
remaining $9 million has not been discounted on the basis of the Company's
intention to pay that portion in stock. The payment to former Astron
shareholders and Mr. Rees' affiliate is interest-free and secured.
The components of Other Payables are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1997
------- -------
<S> <C> <C>
Balance at beginning of the year......................... -- $24,184
Additions during the year.............................. $24,124 --
Amortization of discount............................... 60 363
Amendment of agreement................................. -- (1,000)
------- -------
Balance at end of the year............................... $24,184 $23,547
======= =======
</TABLE>
6. LEASE COMMITMENTS
Capital Lease
Following is a schedule by fiscal year, of future minimum lease payments
under capital lease obligations for certain machinery and equipment, together
with the present value of the net minimum lease payments (in thousands):
Fiscal Years Ending March 31,
<TABLE>
<S> <C>
1998............................................................... $ 7,749
1999............................................................... 5,514
2000............................................................... 3,282
2001............................................................... 2,164
2002............................................................... 562
Thereafter......................................................... --
-------
Total installment payments......................................... 19,271
Amount representing interest....................................... (2,659)
-------
Present value of net installment payments.......................... 16,612
Less: current portion.............................................. 6,475
-------
Long-term portion of capital lease................................. $10,137
=======
</TABLE>
Items costing $29,912 (1996: $28,387) with accumulated amortization $11,389
(1996: $8,781) purchased under capital leases have been included in machinery
and equipment as of March 31, 1997. Lease amortization is included in
depreciation expense.
57
<PAGE> 58
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
Operating Leases
The Company leases some of its facilities under operating leases. Future
minimum lease payments under operating leases with a term of more than one year
are as follows (in thousands):
Fiscal Years Ending March 31,
<TABLE>
<S> <C>
1998............................................... 3,302
1999............................................... 3,078
2000............................................... 2,404
2001............................................... 1,697
2002............................................... 1,406
Thereafter......................................... 5,518
-------
$17,405
=======
</TABLE>
The facilities lease of one of the subsidiaries provides for escalating
rental payments over the lease period. Rent expense for the lease is being
recognized on a straight-line basis over the term of the lease period. Total
operating lease expenses were $1,957, $2,211 and $2,593 for the years ended
March 31, 1995, 1996 and 1997 respectively.
7. CAPITAL COMMITMENTS
Two of the subsidiaries, Flextronics (Malaysia) Sdn. Bhd. and Astron Group
Limited have contracted to purchase $111 and $10,007 respectively, of fixed
assets as of March 31, 1997. These fixed assets have not been delivered and are
therefore not provided for in the accounts as of March 31, 1997.
Astron Group Limited has authorised but not contracted to purchase $28,927
of fixed assets as at March 31, 1997. A commitment of $9,710 has also been made
to contribute to a subsidiary of Astron Group Limited in PRC China for
construction in progress in relation to the factory in Doumen.
8. INCOME TAXES
The domestic and foreign components of income/(loss) before taxes are as
follows:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------------
1995 1996 1997
------- -------- -------
<S> <C> <C> <C>
Singapore.................................... $(1,529) $(21,977) $ (392)
Foreign...................................... 9,148 10,636 10,067
------- -------- -------
$ 7,619 $(11,341) $ 9,675
======= ======== =======
</TABLE>
58
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
Income tax expense consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Current:
Singapore...................................... $ 366 $1,441 $1,608
Foreign........................................ 860 2,266 1,395
------ ------ ------
1,226 3,707 3,003
------ ------ ------
Deferred:
Singapore...................................... 237 74 (559)
Foreign........................................ -- 10 (232)
------ ------ ------
237 84 (791)
------ ------ ------
$1,463 $3,791 $2,212
====== ====== ======
</TABLE>
Total income tax expense differs from the amount computed by applying the
Singapore statutory income tax rate of 26% (1996 and 1995: 26% and 27%) to
income before taxes as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Computed expected income taxes................ $ 2,057 $(2,950) $ 2,516
Effect of Singapore income tax incentives..... -- (82) --
Effect of losses from non-incentive Singapore
operations.................................. 367 7,822 498
Effect of foreign operations.................. (1,609) (1,785) (2,336)
Non-deductible items:
Amortization of goodwill and intangibles.... 205 329 436
Loss on sale of investments................. -- 69 --
Joint venture losses........................ 216 -- --
Bank commitment fee......................... -- -- 382
Others........................................ 227 388 716
------- ------- -------
$ 1,463 $ 3,791 $ 2,212
======= ======= =======
</TABLE>
59
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996 1997
-------- --------
<S> <C> <C>
Deferred tax liabilities:
Fixed assets......................................... $ 1,343 $ 801
Intangible assets.................................... 3,097 2,751
Others............................................... 169 237
-------- --------
4,609 3,789
-------- --------
Deferred tax assets
Fixed assets......................................... (207) (311)
Provision for stock obsolescence..................... (683) (1,364)
Provision for doubtful debts......................... (361) (1,636)
Net operating loss carry forwards.................... (13,805) (16,665)
Unabsorbed capital allowances carry forwards......... (539) (606)
Others............................................... (611) (645)
-------- --------
(16,206) (21,227)
-------- --------
Valuation allowance.................................... 15,690 20,740
-------- --------
Net deferred tax liability............................. $ 4,093 $ 3,302
======== ========
The net deferred tax liability is classified as
follows:
Non-current liability................................ $ 4,353 $ 3,710
Current asset........................................ (260) (408)
-------- --------
$ 4,093 $ 3,302
======== ========
</TABLE>
The Company's net deferred tax assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
---------------------
1996 1997
-------- --------
<S> <C> <C>
Net operating loss carried forward
UK................................................. 2,596 3,291
USA................................................ 11,020 13,185
Malaysia........................................... 189 189
Others............................................... 2,145 4,483
-------- --------
Total deferred tax assets............................ 15,950 21,148
Valuation allowance.................................. (15,690) (20,740)
-------- --------
Net deferred tax assets.............................. $ 260 $ 408
======== ========
</TABLE>
At March 31, 1997, the Company had net operating loss carryforwards of
approximately $30,663 for U.S. federal income tax purposes which will expire
between 2003 and 2011 if not previously utilized. Utilization of the U.S. net
operating loss carryforwards may be subject to an annual limitation due to the
change in ownership rules provided by the Internal Revenue Code of 1986. This
limitation and other restrictions provided by the Internal Revenue Code of 1986
may reduce the net operating loss carryforward such that it would not be
available to offset future taxable income of the U.S. subsidiary.
At March 31, 1997, the Company had net operating loss carryforwards of
approximately $9,973 and $632 in U.K. and Malaysia respectively. The utilization
of these net operating loss carryforwards is limited to the future operations of
the Company in the tax jurisdictions in which such carryforwards arose. These
losses carryforward indefinitely.
60
<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
The Company has been granted the following tax incentives:
(i) Investment allowance on approved fixed capital expenditure
incurred within 5 years after August 1, 1990 subject to a maximum of $2,700
for its Singapore operations was granted by the Economic Development Board
of Singapore. This investment allowance has been utilized by the Company to
reduce taxable income of its Singapore subsidiary since 1991. This
allowance is however fully utilized at the end of fiscal 1996.
(ii) Pioneer status granted to one of its Malaysian subsidiary for a
period of 5 years under the Promotion of Investment Act, 1986. This pioneer
incentive provides a tax exemption on manufacturing income of this
subsidiary.
(iii) Product Export Enterprise incentive for a lower rate for its
facility at Shekou. The Company's operations in Shekou is located in a
"Special Economic Zone" and is an approved "Product Export Enterprise"
which qualifies for a special corporate income tax rate of 10%. This
special tax rate is subject to the Company exporting more than 70% of its
total value of products manufactured in China. The Company's status as a
Product Export Enterprise is reviewed annually by the Chinese government
authorities.
The Company's investments in its plants in Xixiang and Doumen, China fall
under the "Foreign Investment Scheme" that entitles the Company to apply for a
five-year tax incentive. The Company obtained the incentive for the Doumen plant
in December 1995 and the Xixiang plant in October 1996. With the approval, the
Company's tax rates on income from these facilities during the incentive period
will be 0% in years 1 and 2 and 7.5% in years 3 through 5, commencing in the
first profitable year.
A portion of the Company's sales are carried out by its subsidiary in
Labuan, Malaysia where the Company has opted to pay the Labuan tax authorities a
fixed amount of US$8 tax each year in accordance with the Labuan tax
legislation.
A portion of the Company's sales are carried out by its subsidiary, an
offshore ordinary company, in Mauritius where the tax rate is at 0% for such
companies.
The potential deferred tax asset arises substantially from tax losses
available for carry-forward. These tax losses can only be set off against future
income of the operations in respect of which the tax losses arose.
As a result, management is uncertain as to when or whether these operations
will generate sufficient profit to realise the deferred tax asset benefit.
9. SHAREHOLDERS' EQUITY
Exercise of Options
During the financial year ended March 31, 1997, certain employees exercised
their options to purchase 239,633 Ordinary Shares at an exercise price of
US$0.77 -- US$24.00 per share.
Declaration of Dividends
The Company in a general meeting may by ordinary resolution declare
dividends but no dividend will be payable in excess of the amount recommended by
the directors. As the Company is incorporated in Singapore, all dividends
declared will be denominated in Singapore currency. The Company has not declared
any dividends to date.
61
<PAGE> 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
Acquisition of Flextronics International (UK) Limited ("FILUK) (formerly known
as Assembly & Automation (Electronics) Limited)
On April 12, 1995, the Company acquired all the outstanding stock of FILUK
in exchange for $2,879 in cash and 66,908 Ordinary Shares of the Company, valued
at $14.019 per share.
Acquisition of Astron Group Limited ("Astron")
On February 2, 1996, the Company acquired all the outstanding stock of
Astron in exchange for $13,440 in cash; 238,684 Ordinary Shares of the Company,
valued at $27.262 per share; issuance of a $10 million promissory note due one
year after acquisition date; issuance of a $5 million promissory note due two
years after acquisition date and the issuance of $10 million of Ordinary Shares
of the capital of the Company on June 30, 1998. The promissory notes bear
interest at the rate of 8% per annum.
In addition, the Company will issue $9 million of Ordinary Shares of the
Company on June 30, 1998, in accordance to the revised agreement with Mr.
Stephen Rees' affiliate in March 1997.
Acquisition of Fine Line Printed Circuit Design Inc. ("Fine Line")
On November 25, 1996, the Company acquired all the outstanding stock of
Fine Line in exchange for 223,321 Ordinary Shares of the Company, valued at
$25.52 per share.
Foreign Currency Payments in the Company's subsidiaries operating in the
People's Republic of China
The Company's subsidiaries operating in the People's Republic of China are
required to obtain approval from the relevant authorities when making foreign
currency payments.
Issuance of non-employee stock options
On June 3, 1996, the Company issued 20,000 stock options to a customer.
10. SHARE OPTION PLANS
In July 1993, the Company adopted an Executives' Share Option Scheme
("SOS") and an Executives' Incentive Share Scheme ("ISS") for selected
management employees of the Company. The Company granted stock options for
344,520 Ordinary Shares exercisable at $2.92 per share (fair market value at
date of the grant) under the SOS and stock options for 54,618 Ordinary Shares at
S$0.01 per share (fair market value at date of grant was $2.92 per share) under
the ISS.
The Company's 1993 Share Option Plan (the "Plan") that provides for the
grant of incentive stock options, automatic option grants and non-statutory
stock options to employees and other qualified individuals to purchase Ordinary
Shares of the Company. In August 1996 the Company's 1993 Share Option Plan was
amended to reserve an additional 500,000 Ordinary Shares for issuance. At March
31, 1997, the Company had reserved 2,000,000 Ordinary Shares for issuance under
the Plan.
In January 1995, the Company acquired nCHIP and thereby assumed the
existing nCHIP stock option plan and employee stock options outstanding
thereunder. The outstanding nCHIP employee stock options were converted into
options to purchase approximately 345,389 of the Company's Ordinary Shares.
Proforma information regarding net income and earnings per share is
required by SFAS 123, which also requires that the information be determined as
if the Company has accounted for its employee stock options granted subsequent
to March 31, 1995 under the fair value method of this Statement. The fair value
of these options was estimated at the date of grant using the Black-Scholes
multiple option pricing model with the following weighted average assumptions:
risk-free interest rates ranging from 5.31% to 5.66% and from 5.40%
62
<PAGE> 63
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
to 5.77% for 1996 and 1997, respectively; a dividend yield of 0.0%, a volatility
factor of the expected market price of the Company's common stock of 0.67, and a
weighted-average expected life of the option of 0.13 years beyond each
respective vesting period.
<TABLE>
<CAPTION>
MARCH 31,
-------------
1996 1997
---- ----
<S> <C> <C>
Options granted 4 year vesting................................. 628 705
Options granted 2 year vesting................................. 15 15
---- ----
Total granted.................................................. 643 720
==== ====
Weighted average vesting period (years)........................ 3.96 3.96
</TABLE>
The weighted average vesting period is rounded to 4 years.
The amount of compensation expense recognized under all Flextronics Share
Option Plans is $1,453 in 1996 and $3,290 in 1997.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those traded options, and because the changes in the subjective
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
Had the compensation cost for the Company's stock-based compensation plans
been determined based on the fair value at the grant dates for awards under
those plans consistent with the SFAS 123, the Company's net income and earnings
per share would have been reduced to the proforma amounts indicated below:
<TABLE>
<CAPTION>
MARCH 31,
-------------------
1996 1997
-------- ------
<S> <C> <C>
Net income/(loss):
As reported............................................ $(15,132) $7,463
Proforma............................................... (16,052) 5,380
Net income/(loss) per share
Primary
As reported......................................... $ (1.19) $ 0.50
Proforma............................................ (1.27) 0.36
</TABLE>
Because SFAS 123 is applicable only to awards granted subsequent to
December 30, 1994, the proforma effect will not be fully reflected until 1998.
63
<PAGE> 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
The following table presents the activity for options.
<TABLE>
<CAPTION>
1995 1996 1997
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding -- beginning of year.... 1,004,902 $ 3.47 1,026,052 $ 4.76 1,315,970 $12.52
Granted............................. 231,249 8.97 641,783 20.63 721,203 25.10
Exercised........................... (143,699) 2.96 (304,201) 3.30 (239,633) 5.86
Forfeited........................... (66,400) 3.88 (47,664) 11.03 (124,629) 17.81
Outstanding -- end of year.......... 1,026,052 4.76 1,315,970 12.60 1,672,911 18.57
Exercisable at end of year.......... 394,535 414,855 576,896
Weighted average fair value of
options granted during the year... 9.67 9.22 11.25
</TABLE>
11. PROVISION FOR PLANT CLOSURE
The provision for plant closure of $5,868 in fiscal 1997 relates to the
costs incurred in the closure of the Texas facility, the write-off of obsolete
equipment at the nChip semiconductor fabrication facility and downsizing the
Singapore manufacturing operations. The provision includes $2 million provision
for severance payment and $500 provision for the write-off of fixed assets in
the Singapore manufacturing facilities. An amount of $2,808 associated with
certain obsolete equipment at the Company's facilities nChip and Texas have been
written off. The provision also includes severance payments amounting to $560
for the employees of the Texas and nChip facility.
The provision for plant closure of $1,254 in fiscal 1996 was associated
with the write off of certain obsolete equipment at the Company's facilities in
Malaysia and Shekou, China.
The components of plant closure costs are as follows:
<TABLE>
<CAPTION>
MARCH 31,
-----------------
1996 1997
------ ------
<S> <C> <C>
Assets write-off........................................... $1,254 $3,308
Severance payment to employees............................. -- 2,560
------ ------
1,254 5,868
------ ------
Severance payment made during the year..................... -- $ 560
====== ======
</TABLE>
12. BANK COMMITMENT FEES AND CONSULTANCY FEES
In March 1997, the Company recorded bank commitment fees expenses of $1,469
which were incurred in obtaining new credit facilities from its bankers to
finance the acquisition of the Karlskrona Facilities from Ericsson Business
Network AB and for working capital. In addition, the Company also recorded $362
of consultancy fees in March 1997 for a key employee of Ericsson with respect to
the Company's acquisition of the Karlskrona Facilities.
13. RELATED PARTY TRANSACTIONS
For the year ended March 31, 1997, the Company had net sales of $1,548 to
Metcal, Inc., a precision heating instrument company. The Company's Chairman and
Chief Executive Officer, Michael E. Marks has a beneficial interest in Metcal,
Inc.
For the year ended March 31, 1996, the Company had net sales of $2,133 to
Metcal, Inc.
64
<PAGE> 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
Prior to becoming the Company's Chief Officer in January 1994, Michael E
Marks was the President and Chief Executive Officer of Metcal, Inc Michael E.
Marks remained as a director of Metcal, Inc. during the year ended March 31,
1997.
In March 1997, the Company revised the agreement to pay in June 1998 a $15
million consulting fee to an entity affiliated with Stephen JL Rees Senior Vice
President, Worldwide Sales and Marketing. The Company and Mr. Rees agreed to
remove the remaining conditions to payment of the fee and to reduce this amount
of the fee which remains payable in June 1998 to $14 million.
For the year ended March 31, 1997, the Company transacted with Croton Ltd
and Mayfield International Limited ('Mayfield'), both companies of which Stephen
JL Rees has beneficial interests. During the current fiscal year, $118 was paid
for services rendered by Croton Ltd under a management service contract. Astron
has also rented an office from Mayfield, and rentals charged to Astron during
the period amounted to $208. At March 31, 1997 a loan balance in the amount of
$2,554 was due from Mayfield. The loan is unsecured, interest bearing at 7.15%
per annum and is wholly repayable by February 4, 1999.
14. MERGERS, ACQUISITIONS AND STRATEGIC INVESTMENTS
Restatement
The Company has recently reconsidered its accounting treatment for the
acquisition of the Astron Group Limited ("Astron") and a new independent
valuation was performed as of the date of the acquisition. The cost of acquiring
Astron has been changed from amounts previously reported, and the allocation of
the purchase price to the assets acquired is based on the new valuation report.
The originally reported consideration paid to acquire Astron at February 2,
1996 and the revised cost are as follows:
<TABLE>
<CAPTION>
AS ORIGINALLY
REPORTED AS RESTATED
------------- -----------
<S> <C> <C>
Cash................................................ $13,440 $13,440
Ordinary shares..................................... 6,507 6,507
Ordinary shares to be issued June 30, 1998.......... 10,000 10,000
Promissory notes.................................... 15,000 15,000
Contingent ("earnout") consideration................ 3,125(i) --
Service agreement................................... -- 14,124(ii)
Direct costs........................................ 700 700
------- -------
Total purchase consideration........................ $48,772 $59,771
======= =======
</TABLE>
- ---------------
(i) The conditions for the earnout had not been met at March 31, 1996.
(ii) The $15 million consultant and service agreement with the former Chairman
of Astron was originally deemed a contingent compensation agreement. On
reconsideration, the agreement was determined to require the payment of
purchase consideration on June 30, 1998 of which $5 million is payable in
cash and the balance in Ordinary Shares. The cash portion is included at
its present value as of February 2, 1996.
65
<PAGE> 66
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
In the Company's original accounting for the allocation of the purchase
price, certain intangible assets had been identified and valued. However, due to
an oversight, no value was recorded. The allocation of the purchase price as
originally reported and as reallocated on the basis of the new valuation are as
follows:
<TABLE>
<CAPTION>
AS ORIGINALLY
REPORTED AS RESTATED
------------- -----------
<S> <C> <C>
Astron's net assets at fair value................... $16,960 $17,200
In-process research and development................. 31,562 29,000
Intangible assets................................... 250 11,910
Goodwill............................................ -- 4,758
Less: deferred tax liability........................ -- (3,097)
------- -------
Total............................................... $48,772 $59,771
======= =======
</TABLE>
The Company has restated its March 31, 1996 financial statements to give
effect to the above changes in the consideration, and the new allocation of the
purchase price. The $17.4 million net loss previously reported for the year
ended March 31, 1996 has been reduced by $2.3 million ($0.20 per share) to give
effect to the change in the amount of in-process research and development
written off on acquisition and to the amortization of the recorded goodwill and
the increase in the acquired intangible assets. The per share amount also
includes the effect of restating the weighted average number of outstanding
Ordinary Shares and equivalents.
The effects of the adjustments described above are as follows:
<TABLE>
<S> <C>
Restatement of 1996 Net Loss
Net loss as originally reported................................. $(17,412)
Decrease in amount of in-process research and development
written off................................................... 2,562
Increase in:
Intangible asset amortization................................. (208)
Goodwill amortization......................................... (14)
Interest expense due from discounting of $5 million cash...... (60)
--------
Net loss as restated............................................ $(15,132)
========
</TABLE>
The discussion of the Astron acquisition below gives effect to the
restatement of the 1996 amounts.
As a result, the consolidated financial statements for March 31, 1996 have
been revised to reflect the operations of the Company as if the information in
the new valuation had occurred as of February 2, 1996 after giving effect to
certain adjustments including amortization of intangibles and goodwill.
The Company is engaged in ongoing discussions with the staff of the
Securities and Exchange Commission concerning its revised accounting for the
Astron acquisition. Because these discussions are continuing, the Company's
accounting for this acquisition, and related disclosures, are subject to
modification.
Current Year
In November 25, 1996, the Company acquired Fine Line Printed Circuit
Design, Inc. ("Fine Line"), a circuit board layout and prototype operation
located in San Jose, California. The acquisition was accounted for as a pooling
of interests and the Company has issued 223,321 Ordinary Shares in exchange for
all of the outstanding capital stock of Fine Line. Prior period financial
statements were not restated because the financial results of Fine Line do not
have a material impact on the consolidated result.
On December 20, 1996, the Company acquired 40% of FICO Investment Holding
Limited ("FICO") for $5.2 million of which $3 million was paid in December 1996
and the balance payment of $2.2 million which was paid in June 1997 was accrued
for in March 1997. The excess of the purchase price over the fair market value
of the net tangible assets acquired amounted to $3.2 million which are being
amortized over ten
66
<PAGE> 67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
years. The Company has an option to purchase the remaining of 60% of FICO in
1998; the consideration for the remaining 60% is dependent on the financial
performance of FICO for the period ending December 31, 1997.
On March 27, 1997, the Company acquired the manufacturing facilities in
Karlskrona, Sweden and related inventory, equipment and assets from Ericsson
Business Networks AB ("Ericsson") for $82,354 which was financed by a bank loan.
The transaction has been accounted for under the purchase method and
accordingly, the purchase price has been allocated to the assets based on their
estimated fair market values at the date of acquisition.
The consolidated financial statements contain the results of the acquired
companies from the date of acquisition.
Previous Years
On April 12, 1995, the Company acquired all of the issued share capital of
Assembly & Automation (Electronics) Limited, a private limited company
incorporated in the UK that provides contract manufacture of electronics and
telecommunications equipment, for a total consideration of $4.1 million by way
of cash and the issuance of 66,908 Ordinary Shares. The transaction has been
accounted for under the purchase method, and accordingly, the purchase price has
been allocated to the assets and liabilities assumed based upon their estimated
fair market values at the date of acquisition. The excess of the purchase price
over the fair market value of the net tangible assets acquired aggregated
approximately $4.6 million of which $237 was allocated to intangibles which are
being amortized on a straight line basis over their estimated useful life of
three years. Goodwill is amortized over twenty years.
On February 2, 1996, the Company acquired all of the issued share capital
of Astron Group Limited, a private limited company incorporated in the Hong Kong
who is a manufacturer of circuit boards used in electronics and
telecommunications, for a consideration of $59.8 million by way of cash;
issuance of 238,684 Ordinary Shares and $10 million of Ordinary Shares of the
Company on June 30, 1998; and the issuance of promissory notes bearing interest
at 8%. The Company had originally agreed to pay an earnout of up to $12.5
million contingent upon Astron meeting certain pre-tax profit for calendar year
1996.
In March 1997, management negotiated with the stockholders of Astron and an
earnout of $6.25 million was agreed. This amount has been added, in March 1997
to goodwill acquired.
The transaction was accounted for under the purchase method, and
accordingly, the purchase price has been allocated to the assets and liabilities
assumed based upon their estimated fair market values at the date of
acquisition. The valuation of Astron's in-process research & development was
determined by an independent valuation firm to be $29 million, and the Company
has written off this $29 million in the consolidated Statement of Operations for
the year ended March 31, 1996. The valuation has also resulted in the allocation
of $16.7 million to goodwill and identifiable intangible assets. Goodwill of
$4.8 million and $11.9 million of identifiable intangible assets principally
related to developed technology, customer list, assembly workforce and
trademarks were recorded.
The consulting and service agreements with an affiliate of the former
Chairman of Astron, provided for an annual fee, plus a $15 million payment to be
made on June 30, 1998 subject to certain terms and conditions. A new agreement
was signed between the two parties in March 1997 which reduced the amount to $14
million and removed the original terms and conditions. This revision to the
agreement has been accounted for as a reduction in the purchase price and
goodwill as of this date of the new agreement.
The consolidated financial statements contain the results of the acquired
companies from the date of acquisition.
67
<PAGE> 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
In January 1995, the Company acquired nCHIP by the issuance of 2,104,602
ordinary shares of S$0.01 par value each, in exchange for all of the outstanding
capital stock of nCHIP. In addition, outstanding nCHIP employee stock options
were converted into options to purchase approximately 345,389 of the Company's
ordinary shares. The transaction was accounted for as a pooling of interests and
therefore, all prior period financial statements presented have been restated as
if the acquisition took place at the beginning of such periods.
nCHIP has a calendar year end and, accordingly, the nCHIP statement of
income for the year ended December 31, 1993 have been combined with the
Company's statement of income for the fiscal years ended March 1994. Effective
April 1, 1994 nCHIP's fiscal year end has been changed from December 31 to March
31 to conform to the Company's fiscal year-end. Accordingly, nCHIP's operations
for the three months ended March 31, 1994 including net sales of $2,302 and net
loss of $596 have been excluded from consolidated results and have been reported
as an adjustment to the April 1, 1994 consolidated retained earnings.
Separate results of operations for the period prior to the acquisition are
as follows:
<TABLE>
<CAPTION>
UNAUDITED
NINE MONTHS
ENDED
DECEMBER 31,
1994
------------
<S> <C>
Net sales
Company....................................................... $163,249
nCHIP......................................................... 7,623
--------
Combined...................................................... $170,872
========
Net income
Company....................................................... $ 7,626
nCHIP......................................................... (3,400)
--------
Combined...................................................... $ 4,226
========
Other changes in shareholders' equity
Company....................................................... $ (144)
nCHIP......................................................... 5,287
--------
Combined...................................................... $ 5,143
========
</TABLE>
As of December 20, 1994, the Company had a 49% interest in FlexTracker and
accounted for this investment using the equity method. On December 30, 1994, the
Company acquired the net assets (except the $1.0 million loan made by the joint
venture partner, HTS, to FlexTracker) for approximately $3.3 million.
On March 1, 1994, the Company acquired all of the outstanding stock of FTI,
a company that provides high value-added, high quality, just-in-time
manufacturing services to original equipment manufacturers in the computer and
electronics industry, for approximately $4.0 million. The transaction has been
accounted for under the purchase method, and accordingly, the purchase price has
been allocated to the assets acquired and liabilities assumed based upon their
estimated fair market values at the date of acquisition. Such allocation has
been based on the valuation by an independent corporate valuation firm. The
excess of the purchase price over the fair market value of the net tangible
assets acquired resulting in goodwill aggregated approximately $2.4 million and
has been allocated to goodwill which is being amortized on a straight-line basis
over its estimated useful life of twenty-five years.
The operating results of FTI are included in the Company's consolidated
results of operations from the date of acquisition.
68
<PAGE> 69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
The following unaudited pro forma information of the Company reflects the
results of operations for the years ended March 31, 1995 and 1996 as if the
acquisitions of Assembly & Automation (Electronics) Limited and Astron Group
Limited had occurred as of April 1, 1994 and as if the acquisitions of the net
assets and business of Flextracker and FTI also had, occurred as of April 1,
1994 and after giving effect to certain adjustments including amortization of
intangibles and goodwill. The unaudited proforma information does not include
the effects of acquiring the Karlskrona Facilities in March 1997 because
information relating to its operation prior to the company's acquisition is not
available. The unaudited pro forma information is based on the acquired
entities' results of operations for the years ended December 31, 1994 and 1995
as the fiscal year end of these entities and the rest of the group are not
co-terminus. These pro forma results have been prepared for comparative purposes
only and do not purport to be indicative of what operating results would have
been had the acquisition actually took place at April 1, 1994 or 1995 or of
operating results which may occur in the future.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1995 1996
-------------------------------------------------------- -------- -------
<S> <C> <C>
Net sales............................................... $292,219 466,039
Net income.............................................. (872)* 11,977*
Net income per share.................................... (0.07) 0.89
</TABLE>
- ---------------
* Excludes the effects of the write-off of $29,000 of in-process research and
development at the date of the acquisition of Astron.
15. SEGMENT REPORTING
The Company operates in one primary business segment -- providing
sophisticated electronics assembly and turnkey manufacturing services to a
select group of original equipment manufacturers engaged in the computer,
medical, consumer electronics and communications industries. Sales to major
customers who accounted for more than 10% of net sales were as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------------------
CUSTOMER 1995 1996 1997
----------------------------------------------------- ---- ----- -----
<S> <C> <C> <C>
Visioneer............................................ 1.70% 13.14% 7.00%
Lifescan............................................. 20.1% 14.10% 13.34%
Global Village....................................... 4.50% 10.50% 8.26%
U.S. Robotics........................................ 0.00% 0.00% 10.63%
</TABLE>
Sales for similar classes of products within the Company's business segment
is presented below (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------
PRODUCT TYPE 1995 1996 1997
------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Medical.................................... $ 49,152 $ 78,322 $ 89,682
Computer................................... 77,419 220,930 250,498
Telecommunication.......................... 43,399 60,466 75,947
PCB........................................ -- 4,485 28,470
Industrial................................. -- 9,664 6,832
Consumer products.......................... 47,515 23,858 12,495
MCMs....................................... 11,847.. 19,817 19,214
Others..................................... 8,054 30,804 7,447
-------- -------- --------
$237,386 $448,346 $490,585
======== ======== ========
</TABLE>
69
<PAGE> 70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
A summary of the Company's operations by geographical area for the three
years ended March 31, 1995, 1996 and 1997 was as follows (in thousands):
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------
PRODUCT TYPE 1995 1996 1997
------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
NET SALES:
Singapore:
Unaffiliated customers
Domestic............................ $ 3,596 $ 653 $ 1,401
Export.............................. 7,358 9,277 851
Intercompany.......................... 67,572 77,899 88,054
-------- -------- --------
78,526 87,829 90,306
Hong Kong/China/Mauritius:
Unaffiliated customers
Domestic............................ 17,757 11,838 11,398
Export.............................. -- 2,980 21,203
Intercompany.......................... 29,353 60,780 129,162
-------- -------- --------
47,110 75,598 161,763
USA/Europe/Mexico:
Unaffiliated customers
Domestic............................ $ 50,506 $207,961 $208,225
Export.............................. -- 13,767 2,431
Intercompany.......................... -- 27 9
-------- -------- --------
50,506 221,755 210,665
Malaysia:
Unaffiliated customers
Domestic............................ -- -- --
Export.............................. 158,168 $201,870 $245,075
Intercompany.......................... 4 -- --
-------- -------- --------
158,172 201,870 245,075
Eliminations............................... (96,928) (138,706) (217,224)
-------- -------- --------
$237,386 $448,346 $490,585
======== ======== ========
INCOME/(LOSS) FROM OPERATIONS:
Singapore................................ $ 90 $(25,334) $ (934)
Hong Kong/China/Mauritius................ 638 (6,110) 4,787
USA/Mexico............................... (1,290) 4,570 (5,531)
Europe................................... 15 (1,514) (1,829)
Malaysia................................. 10,754 18,953 14,426
-------- -------- --------
$ 10,207 $ (9,435) $ 10,919
======== ======== ========
</TABLE>
70
<PAGE> 71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE INFORMATION
UNLESS OTHERWISE INDICATED)
<TABLE>
<CAPTION>
MARCH 31,
----------------------------------
PRODUCT TYPE 1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
IDENTIFIABLE ASSETS:
Singapore................................ $ 23,426 $ 48,434 $ 50,118
Hong Kong/China/Mauritius................ 17,020 50,284 68,695
USA/Mexico............................... 26,354 73,552 74,884
Europe................................... 22 11,060 116,919
Malaysia................................. 49,295 47,694 48,618
-------- -------- --------
$116,117 $231,024 $359,234
======== ======== ========
</TABLE>
Geographic revenue transfers are based on selling prices to unaffiliated
companies, less discounts. Income (loss) from operations is net sales less
operating expenses, goodwill amortization and provision for plant closings, but
prior to interest or other expenses and income taxes.
The Company's subsidiaries, with the exception of Astron Group Limited, are
interdependent and are not managed for stand alone results. Certain operational
functions for the entire Company, such as marketing and administration, may be
carried out by a subsidiary in one country. In addition, the Company may from
time to time shift responsibilities from a subsidiary in one country to a
subsidiary in another country, thereby changing the operating results of the
impacted subsidiaries but not the Company as a whole. For these reasons, the
Company believes that changes in results of operations in the individual
countries in which it operates are not necessarily reflective of material
changes in the Company's overall results.
71
<PAGE> 72
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED MARCH 31, 1995, 1996, 1997
ALLOWANCE FOR DOUBTFUL ACCOUNTS RECEIVABLE:
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER DEDUCTIONS END
PERIOD PERIOD EXPENSES ACCOUNTS WRITE-OFFS OF PERIOD
- ---------------------------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended 3/31/95...................... 549,000(a) 1,296,000 0 (85,000) 1,760,000
Year Ended 3/31/96...................... 1,903,000(b) 1,980,000 0 (307,000) 3,576,000
Year Ended 3/31/97...................... 3,576,000 2,866,000 0 (785,000) 5,657,000
</TABLE>
ALLOWANCE FOR STOCK OBSOLESCENCE:
<TABLE>
<CAPTION>
ADDITIONS
-----------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER DEDUCTIONS END
PERIOD PERIOD EXPENSES ACCOUNTS WRITE-OFFS OF PERIOD
- -------------------------------------- ------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year Ended 3/31/95.................... 1,832,000(a) 345,000 0 (302,000) 1,875,000
Year Ended 3/31/96.................... 3,945,000(b) 2,277,000 0 (1,646,000) 4,576,000
Year Ended 3/31/97.................... 4,576,000 4,228,000 0 (2,633,000) 6,171,000
</TABLE>
- ---------------
(a) The opening balances have been restated to reflect the acquisition of net
assets of Flex Tracker Sdn Bhd which was acquired in December 1994.
(b) The opening balances have been restated to reflect Flextronics International
(UK) Ltd acquired on April 12, 1995 and Astron Group Limited acquired on
February 2, 1996 under the purchase method.
72
<PAGE> 73
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Date: July , 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 Report (including any and all 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 Exchange Act of 1934, this
Report 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 Chief July , 1997
- --------------------------------------------- Executive Officer (principal
Michael E. Marks executive officer)
/s/ TSUI SUNG LAM President, Asia Pacific July , 1997
- --------------------------------------------- Operations and Director
Tsui Sung Lam
/s/ GOH CHAN PENG Senior Vice President, Finance July , 1997
- --------------------------------------------- and Operations, Asia Pacific
Goh Chan Peng (principal financial and
accounting officer)
/s/ ROBERT R.B. DYKES Senior Vice President of Finance July , 1997
- --------------------------------------------- and Administration and Director
Robert R.B. Dykes
/s/ BERNARD J. LACROUTE Director July , 1997
- ---------------------------------------------
Bernard J. Lacroute
/s/ MICHAEL J. MORITZ Director July , 1997
- ---------------------------------------------
Michael J. Moritz
/s/ STEPHEN J.L. REES Senior Vice President, Worldwide July , 1997
- --------------------------------------------- Sales and Marketing and Director
Stephen J.L. Rees
/s/ RICHARD L. SHARP Director July , 1997
- ---------------------------------------------
Richard L. Sharp
</TABLE>
73
<PAGE> 74
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ -----------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Reorganization dated as of September 12, 1994 among the
Company, nCHIP Acquisition Corporation and nCHIP (the "Reorganization
Agreement"). Certain Disclosure Schedules of nCHIP and the Company 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 Company'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 Company, nCHIP Acquisition Corporation and nCHIP. (Incorporated by
reference to Exhibit 2.7 of the Company's registration statement on Form S-4,
No. 33-85842.)
2.3 Share Purchase Agreement dated as of April 12, 1995 among the Company, A&A
and all of the shareholders of A&A. (Incorporated by reference to Exhibit 2.1
of the Company's Current Report on Form 8-K for the event reported on April
12, 1995.)
2.4 Share Purchase Agreement among the Company, A&A and all of the shareholders
of A&A. 2.5 (Incorporated by reference to Exhibit 2.1 of the Company's
Current Report on Form 8-K for the event reported on April 12, 1995.)
2.5 Agreement among the Company, Alberton Holdings Limited and Omac Sales Limited
dated as of January 6, 1996. (Incorporated by reference to Exhibit 2.1 of the
Company's Current Report on Form 8-K for the event reported on February 2,
1996.)
2.6 Asset Transfer Agreement dated as of February 12, 1997 between Ericsson
Business Networks AB and Flextronics International Sweden AB. (Incorporated
by reference to Exhibit 2.1 of the Company's registration statement on Form
S-3, No. 333-21715.)
3.1 Memorandum of Association of the Company. (Incorporated by reference to
Exhibit 3.1 of the Company's registration statement on Form S-1, No.
33-74622.)
3.2 Articles of Association of the Company. (Incorporated by reference to Exhibit
3.2 of the Company's registration statement on Form S-4, No. 33-85842.)
4.1 Registration Rights Agreement dated July 8, 1993, as amended. (Incorporated
by reference to Exhibit 10.34 of the Company's registration statement on Form
S-1, No. 33-74622.)
4.2 Registration Rights Agreement dated as of April 12, 1995 among the Company
and certain shareholders of A&A. (Incorporated by reference to Exhibit 2.2 of
the Company's Current Report on Form 8-K for the event reported on April 12,
1995.)
10.1 Form of Indemnification Agreement between the Registrant and its Directors
and certain officers. (Incorporated by reference to Exhibit 10.1 of the
Company's registration statement on Form S-1, No. 33-74622.)
10.2+ 1993 Share Option Plan. (Incorporated by reference to Exhibit 10.2 of the
Company's registration statement on Form S-1, No. 33-74622.
10.3+ Executives' Share Option Scheme, as amended. (Incorporated by reference to
Exhibit 10.3 of the Company's registration statement on Form S-1, No.
33-74622.)
10.4+ Executives' Incentive Share Scheme, as amended. (Incorporated by reference to
Exhibit 10.4 of the Company's registration statement on Form S-1, No.
33-74622.)
10.5+ nCHIP, Inc. Amended and Restated 1988 Stock Option Plan. (Incorporated by
reference to Exhibit 10.5 of the Company's registration statement on Form
S-4, No. 33-85842.)
10.6* Agreement to Grant Options dated as of June 9, 1995 between the Company and
Lifescan. (Incorporated by reference to Exhibit 10.7 of the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1995.)
</TABLE>
<PAGE> 75
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ -----------------------------------------------------------------------------
<S> <C>
10.7 Lease Agreement dated as of October 1, 1994 among Shenzhen Xinan Industrial
Shareholdings Limited, Flextronics Industrial (Shenzhen) Limited and
Flextronics Singapore Pte Ltd. (Incorporated by reference to Exhibit 10.25 of
the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1995).
10.11 Lease Agreement dated as of January 2, 1995 between Shenzhen Xinan Industrial
Shareholdings Limited and Flextronics Industrial (Shenzhen) Limited.
(Incorporated by reference to Exhibit 10.25 of the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1995.)
10.8+ Services Agreement between the Registrant and Stephen Rees dated as of
January 6, 1996. (Incorporated by reference to Exhibit 10.1 of the Company's
Current Report on Form 8-K for the event reported on February 2, 1996.)
10.9+ Supplemental Services Agreement between Astron and Stephen Rees dated as of
January 6, 1996. (Incorporated by reference to Exhibit 10.2 of the Company's
Current Report on Form 8-K for the event reported on February 2, 1996.)
10.10+ Promissory Note dated April 17, 1995 executed by Michael E. Marks in favor of
Flextronics Technologies, Inc. (Incorporated by reference to Exhibit 10.34 to
the Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1995.)
10.11+ Employment and Noncompetition Agreement between the Company and David
Tuckerman. (Incorporated by reference to Exhibit 10.35 of the Company's
registration statement on Form S-4, No. 33- 85842.)
10.12+ Service Agreement dated July 8, 1993 between the Registrant and Dennis P.
Stradford. (Incorporated by reference to Exhibit 10.36 of the Company's
registration statement on Form S-1, No. 33-74622.)
10.13+ Service Agreement dated July 8, 1993 between the Registrant and Tsui Sung
Lam. (Incorporated by reference to Exhibit 10.37 of the Company's
registration statement on Form S-1, No. 33-74622.)
10.14+ Service Agreement dated July 8, 1993 between the Registrant and Goh Chan
Peng. (Incorporated by reference to Exhibit 10.38 of the Company's
registration statement on Form S-1, No. 33-74622.)
10.15+ Service Agreement dated July 8, 1993 between the Registrant and Teo Buck
Song. (Incorporated by reference to Exhibit 10.39 of the Company's
registration statement on Form S-1, No. 33-74622.)
10.22* Printed Circuit Board Assembly Services Agreement between Lifescan Inc., a
Johnson & Johnson Company, and the Registration dated November 1, 1992.
(Incorporated by reference to Exhibit 10.41 of the Company's registration
statement on Form S-1, No. 33-74622.)
10.23 Tenancy of Flatted Factory Unit dated February 28, 1996 between Jurong Town
Corporation and the Registrant. (Incorporated by reference to Exhibit 10.44
of the Company's Annual Report on Form 10-K for fiscal year ended March 31,
1990.)
10.24 Tenancy of Flatted Factory Unit dated May 14, 1993 between Jurong Town
Corporation and the Registrant. (Incorporated by reference to Exhibit 10.45
of the Company's registration statement on Form S-1, No. 33-74622.)
10.25+ Flextronics Asia U.S.A. 401(k) plan. (Incorporated by reference to Exhibit
10.52 of the Company's registration statement on Form S-1, No. 33-74622.)
</TABLE>
<PAGE> 76
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ -----------------------------------------------------------------------------
<S> <C>
10.26 Acquisition and Subscription Agreement dated June 30, 1993 between FI
Liquidating Company, Inc., Asian Oceanic Nominees and Custodians Limited,
N.T. Butterfield Trustee (Bermuda) Limited, Overseas Asset Holdings, Inc., JF
Asia Select Limited, the Executive Representative, Flex Holdings Pte Limited,
CLG Partners, L.P. and the Liquidators of Asian Oceanic Nominees and
Custodians Limited. (Incorporated by reference to Exhibit 10.53 of the
Company's registration statement on Form S-1, No. 33-74622.)
10.27 Revolving Credit and Term Loan Agreement dated as of March 27, 1997 among the
Company, The First National Bank of Boston, as Agent, and the other lending
institutions listed on Schedule 1 attached thereto. The Company agrees to
furnish a copy of the omitted schedule to the Commission upon request.
(Incorporated by reference to Exhibit 5(a) of the Company's Current Report on
Form 8-K for the event reported on March 27, 1997.)
10.28 Revolving Credit Agreement dated as of March 27, 1997 among Flextronics
International USA, Inc., The First National Bank of Boston, as Agent, and the
other lending institutions listed of Schedule 1 attached thereto.
(Incorporated by reference to Exhibit 5(b) of the Company's Current Report on
Form 8-K for the event reported on March 27, 1997.)
10.29 Employment and Noncompetition Agreement dated as of April 30, 1997 between
Flextronics International Sweden AB and Ronny Nilsson.
10.30 Services Agreement dated as of April 30, 1997 between Flextronics
International USA, Inc. and Ronny Nilsson.
10.31 Promissory Note dated April 15, 1997 executed by Ronny Nilsson in favor of
Flextronics International USA, Inc.
10.32 Letter Agreement dated March 27, 1997 among the Company, Astron Technologies
Limited, Croton Technology Ltd. and Stephen Rees regarding the termination of
the Services Agreement.
10.33 Letter Agreement dated March 27, 1997 between Astron Group Limited and
Stephen Rees regarding the termination of the Supplemental Services
Agreement.
10.34+ Services Agreement between Flextronics Singapore Pte Limited and Goh Chan
Peng effective as of April 1, 1997.
10.35+ Services Agreement between Astron Technologies Limited and Goh Chan Peng
effective as of April 1, 1997.
10.36+ Services Agreement between Astron Technologies Limited and Tsui Sung Lam
effective as of April 1, 1997.
10.37+ Services Agreement between Flextronics Singapore Pte Limited and Tsui Sung
Lam effective as of April 1, 1997.
10.38 First Amendment to Revolving Credit and Term Loan Agreement dated as of May
19, 1997 among the Company, BankBoston, N.A. (formerly known as The First
National Bank of Boston), as Agent, and the other lending institutions listed
on Schedule 1 attached thereto.
10.39 First Amendment to Revolving Credit Agreement dated as of May 19, 1997 among
Flextronics International USA, Inc., BankBoston, N.A., as Agent, and the
other lending institutions listed on Schedule 1 attached thereto.
10.40 Second Amendment to Revolving Credit and Term Loan Agreement dated as of June
30, 1997 among the Company, BankBoston, N.A., as Agent, and the other lending
institutions listed on Schedule 1 attached thereto.
</TABLE>
<PAGE> 77
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------ -----------------------------------------------------------------------------
<S> <C>
10.41 Second Amendment to Revolving Credit Agreement dated as of June 30, 1997
among Flextronics International USA, Inc., BankBoston N.A. as Agent, and the
other lending institutions listed on Schedule 1 attached thereto.
11.1 Statement regarding computation of per share earnings.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Auditors.
27.1 Financial Data Schedule
</TABLE>
- ---------------
* Confidential treatment requested for portions of agreement.
+ Management contract or compensatory plan or arrangement.
(d) See Item 14(a).
<PAGE> 1
EXHIBIT 10.29
EMPLOYMENT AND NONCOMPETITION AGREEMENT
This EMPLOYMENT AND NONCOMPETITION AGREEMENT ("Agreement") is
made as of the Effective Date indicated below by and between Flextronics
International, Sweden AB, a Swedish corporation ("Company"), and Ronny Nilsson
("Employee").
BACKGROUND
This Agreement is entered into in connection with an agreement
(the "Asset Transfer Agreement") among Company and Ericsson Business Networks
AB ("Ericsson") pursuant to which Company is to purchase certain assets. The
Closing Date as defined in the Asset Transfer Agreement shall be the effective
date of this Agreement (the "Effective Date").
Employee is key employee of Ericsson and has been actively
involved in the development and marketing of Ericsson's products and services.
It is in the best interest of the Company to employ Employee to assist in the
transition related to the transaction between Company and Ericsson and to
maintain a positive commercial relationship. It is the intention of the
Company and Employee that Employee be and remain an employee of Company for at
least four years. To preserve and protect the business and assets of which
Employee has and will have knowledge, in consideration for Company's employment
of Employee and in consideration for Company's entering into and performing
under the Purchase Agreement, Employee and Company have agreed to enter into
this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the
mutual agreements of the parties contained herein, Company and Employee hereby
agree as follows:
1. EMPLOYMENT. Company agrees to employ Employee and
Employee accepts employment with Company for a forty-eight (48) month period
commencing on the Effective Date (the "Period"), unless Employee's employment
is sooner terminated in accordance with this Agreement. In the event
employment shall continue after this initial period the parties shall agree on
new terms and conditions.
2. DUTIES. Employee will be employed as and perform the
duties of Senior Vice President, Europe. Employee will have responsibility for
all of the Company's European operations including holding the position as
Managing Director of the Company. Employee agrees that to the best of his
ability and experience he will at all times conscientiously perform all of the
duties and obligations assigned to him under the terms of this Agreement. At
the Company's option, it will be entitled to use Employee's name in
promotional, advertising and other materials used in the ordinary course of
business.
<PAGE> 2
3. FULL-TIME EMPLOYMENT. Employee's employment will be
on a full-time basis. Employee will not engage in any other business or render
any commercial or professional services which adversely affects Employee's
productivity, performance or availability, or conflict in any way with
Employee's obligations to Company.
4. SALARY AND PENSION. Employee's initial annual salary
commencing on the Effective Date will be USD 250,000.00 per annum, to be paid
in monthly payments in SEK at the rate of exchange of SEK 7.64 to the USD 1.00.
Employee's annual salary will be reviewed once per year pursuant to the
Company's annual executive compensation review in March. Employee's annual
pension payment shall be a total amount equaling the sum of (a) 35% of an
amount equaling 20 times the 'basbelopp,' and (b) 25% of the amount between 20
and 30 times the 'basbelopp.' At the end of the employment for any reason, and
at the request of the Employee, the Company shall assist in the transfer of the
pension policies to Employee or to his new employer. Employee shall also be
covered by the TGL group life insurance.
5. BONUS PLAN. Employee will be eligible to participate
in the Corporate Bonus Plan based upon net income performance criteria
determined on an annual budget basis. Employee's bonus percentage for purposes
of participation in the Corporate Bonus Plan is 30%. Depending upon
performance, Employee will have the opportunity to earn up to 50% more than the
target bonus resulting in a maximum bonus of 45% of the annual salary.
6. EMPLOYEE BENEFITS. The Company will continue to put
an apartment at the disposal of Employee in Karlskrona and continue Employee's
automobile allowance. Employee will be entitled to vacation and other benefits
commensurate with his position in accordance with Company's standard policies
in effect from time to time.
7. REIMBURSEMENT OF BUSINESS EXPENSES. Company will, in
accordance with Company's policies in effect from time to time, reimburse
Employee for all reasonable business expenses incurred by Employee in
connection with the performance of Employee's duties under this Agreement,
including, without limitation, reasonable expenditures for business
entertainment and travel, upon submission of the required documentation.
8. CONFIDENTIALITY. Employee will execute Company's
standard Employee Proprietary Information and Inventions Agreement, annexed to
this Agreement.
9. AGREEMENT NOT TO COMPETE.
(a) During his employment by Company or any
related Flextronics company (the "Group") and for 24 months thereafter,
Employee shall not, directly or indirectly, individually or as an employee,
partner, officer, director or shareholder (except to the extent permitted
pursuant to Section (d)) or in any other capacity whatsoever of or for any
person, firm, partnership, company or corporation other than Company or the
Group;
(i) Own, manage, operate, sell, control
or participate in the ownership, management, operation, sales or control of or
be connected in any manner (other than
<PAGE> 3
as a less than 2% shareholder of a publicly held company) with any business
engaged in electronics contract manufacturing or semiconductor design, or
printed circuit board design, fabrication and/or manufacturing research,
marketing or sales that is substantially similar to or competitive with any
services or products created, owned or used by, distributed or under
development by Company or the Group.
(ii) Recruit, attempt to hire, solicit,
assist others in recruiting or hiring, or refer to others concerning
employment, any person who, on or after the Effective Date, is an employee of
Company or the Group or induce or attempt to induce any such employee to
terminate his employment with Company or the Group;
(iii) Induce or attempt to induce any
person or entity to curtail or cancel any business or contracts which such
person or entity had with Company or the Group; or
(iv) Contact, solicit or call upon any
customer or supplier of Company or the Group on behalf of any other person or
entity for the purpose of selling or providing any services or products of the
type normally sold or provided by the Company or the Group.
(b) The agreements set forth in this Section 9
include within their scope all cities and countries in Europe and other
countries in which Company or the Group has engaged in licensing or sales or
otherwise conducted business or selling or licensing efforts at any time during
the two years prior to the Effective Date hereof or during the term of this
Agreement. Employee acknowledges that the scope and period of restrictions and
the geographical area to which the restrictions imposed in this Section 9 shall
apply are fair and reasonable and are reasonably required for the protection of
Company and the Group and that this Agreement accurately describes the business
to which the restrictions are intended to apply.
(c) It is the desire and intent of the parties
that the provisions of this Section 9 shall be enforced to the fullest extent
permissible under applicable law. If any particular provision or portion of
this Section shall be adjudicated to be invalid or unenforceable, this
Agreement shall be deemed amended to revise those provisions or portions to the
minimum extent necessary to render them enforceable.
(d) Despite the provisions of 10(a) Employee
shall be entitled to be reemployed by Ericsson after the expiration of the
Period.
(e) Employee's salary and bonus has been agreed
with due consideration to his obligations under the non compete clause. Thus
USD 50.000 of his fixed income is in consideration for his agreement to observe
provisions of the non-competition clause.
<PAGE> 4
10. TERMINATION.
(a) For Cause. Company may terminate Employee's
employment at any time for "cause," effective immediately upon written notice
to Employee, without prejudice to any other remedy to which Company may be
entitled under this Agreement. As used in this Subsection 10(a), "cause" will
mean (i) an intentional tort so as to cause loss, damage or injury to the
property, reputation or employees of Company or the Group, (ii) any crime or
act of fraud or dishonesty against Company or the Group, (iii) the commission
of a felony, (iv) Employee's habitual neglect of his duties, (v) the disregard
of the policies of Company or the Group so as to cause loss, damage or injury
to the property, reputation or employees of Company or the Group, or (vi) any
other material breach of this Agreement including without limitation a breach
of Section 9.
In the event of any termination for cause, Employee will receive
salary under Section 4 until the date of termination; all other compensation
and benefits from and after the date of termination under this Agreement will
cease (except those benefits that must be continued pursuant to applicable law)
and Company will have no obligation to pay any severance pay whatsoever. If
the termination of Employee is later determined not to have been for cause, the
termination will be deemed to be a termination without cause pursuant to
Subsection 10(c) and Employee's sole remedy under this Agreement will be that
set forth in Subsection 10(c).
(b) Upon Death or Disability. Company may
terminate Employee's employment upon written notice if Employee dies or suffers
any physical or mental disability preventing the substantial performance of his
duties under this Agreement for a period of three (3) consecutive months. In
the event of any termination due to death or disability under this Subsection
10(b), Employee will receive salary under Section 4 until the date of
termination; all other compensation and benefits from and after the date of
termination under this Agreement will cease (except those benefits that must be
continued pursuant to applicable law) and Company will have no obligation to
pay any severance or bonus payments whatsoever.
(c) Termination By Company Other Than For
"Cause." Company may terminate Employee's employment at any time for any
reason or no reason as it deems appropriate in its sole discretion; provided,
however, that in the event such termination is not due to death, disability or
"cause", then Employee, as his sole remedy at under this Agreement, will
continue to be paid his salary at the times such payments would have been due
Employee pursuant to Section 4 of this Agreement for the remainder of the
Period. Notwithstanding the foregoing, in the event Employee is terminated
without cause during the last year of the Period, the Company shall continue to
pay the salary to Employee for a period of one year from the date of
termination and make pension contributions during that period. Further, in the
event Employee is terminated on a date during a calendar year, the Employee's
right to exercise options shall vest in the amount of options that would have
vested had the options vested monthly from the beginning of said calendar year.
Company shall have no duty or responsibility to continue to provide other
benefits under this Agreement or other employee benefit plans and programs,
except and to such extent as may be required by laws.
<PAGE> 5
(d) Survival. Employee's obligations under
Sections 8 and 9 of this Agreement will survive the termination of Employee's
employment by Company or the Group.
11. MISCELLANEOUS.
(a) Notices. Any and all notices permitted or
required under this Agreement must be in writing. Notices will be deemed given
(i) when received, (ii) one day after having been sent by commercial overnight
courier with written verification of receipt, or (iii) five (5) days after
having been sent by registered or certified mail from a location on the United
States mainland, return receipt requested, postage prepaid, whichever occurs
first, at the addresses set forth below or at any new address, notice of which
has been given under this Section:
If Company:
Flextronics International, Sweden AB
Box 532
371 23 KARLSKRONA
SWEDEN
Attn: Chief Executive Officer
If to Employee:
Vastra Sjogatan 4
392 32 KALMAR
SWEDEN
(b) Amendments. This Agreement including the
Exhibit hereto contains the entire agreement and supersedes all prior
agreements between Company and Employee concerning Employee's employment, and
may not be changed or modified in whole or in part except by a writing signed
by the party against whom enforcement of the change or modification is sought.
(c) Successors and Assigns. This Agreement is
not assignable by either Employee or Company, except that the rights and
obligations of Company under this Agreement may be assigned to a corporation
which becomes the successor to Company as the result of a merger or other
corporate reorganization and which continues the business of Company, or the
Group.
(d) Governing Law. This Agreement will be
governed by and interpreted according to the substantive laws of Sweden without
regard to such country's conflicts law.
This Agreement has been drawn in one version in the
English and one in the Swedish language. The version in Swedish shall have
precedence at the application and interpretation of the Agreement. Any dispute
shall be settled at a Swedish court in Sweden.
<PAGE> 6
(e) No Waiver. The failure of either party to
insist on strict compliance with any of the terms of this Agreement will not be
deemed to be a waiver of any term of this Agreement or of that party's right to
require strict compliance with the terms of this Agreement in any other
instance.
(f) Severability. Employee and Company recognize
that the limitations contained herein are reasonably and properly required for
the adequate protection of the interest of Company. If for any reason a court
of competent jurisdiction or binding arbitration proceeding finds any provision
of this Agreement, or the application thereof, to be unenforceable, the
remaining provisions of this Agreement will be interpreted so as best to
reasonably effect the intent of the parties. The parties further agree to
replace any such invalid or unenforceable provisions with valid and enforceable
provisions designed to achieve, to the extent possible, the business purposes
and intent of such unenforceable provisions.
(g) Counterparts. This Agreement may be executed
in one or more counterparts, each of which when taken together shall constitute
one original. Any copy of this Agreement with the original signatures of all
parties appended shall constitute an original.
(h) Independent Review. Employee acknowledges
that Employee has had an opportunity to consult with independent legal counsel
of Employee's own choosing with regard to the terms of this Agreement, and
enters into this Agreement voluntarily and with a full understanding of its
terms.
(i) Effect of Agreement. This Agreement will be
void and have no effect if the Effective Date does not occur on or before April
30, 1997.
IN WITNESS WHEREOF, this Agreement is made and effective as of
the Effective Date.
COMPANY EMPLOYEE
By:__________________________ __________________________
Title:_______________________
<PAGE> 1
EXHIBIT 10.30
SERVICES AGREEMENT
This SERVICES AGREEMENT ("Agreement") is made as of the Effective Date
indicated below by and between Flextronics International USA, Inc., a
California corporation ("Company"), and Ronny Nilsson ("Nilsson").
BACKGROUND
This Agreement is entered into in connection with an agreement (the
"Asset Transfer Agreement") among Flextronics International Sweden AB and
Ericsson Business Networks AB ("Ericsson") pursuant to which Flextronics
International Sweden AB is to purchase certain assets. The Closing Date as
defined in the Asset Transfer Agreement shall be the effective date of this
Agreement (the "Effective Date").
Nilsson is a key employee of Ericsson and has been actively involved
in the development and marketing of Ericsson's products and services It is in
the best interest of the Company to employ Nilsson to assist in the transition
related to the transaction between Flextronics International Sweden AB and
Ericsson and to maintain a positive commercial relationship. In addition, it
will also serve the Company's interest to have Nilsson be available from time
to time to provide his time, skills, and experience to certain activities which
will benefit the Company's world-wide business activities and sales efforts.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements of the parties contained herein, Company and Nilsson hereby agree as
follows:
1. Term. Nilsson agrees to provide the services described below
and the Company agrees to pay for such services as provided below for a
forty-eight (48) month period commencing on the Effective Date (the "Period"),
unless Nilsson's service is sooner terminated in accordance with this
Agreement.
2. Services. Nilsson will provide services in the form of
management consultation and guidance relating to the Company's operations
including merger/acquisition activities and sales of the Company's
manufacturing services to non-US customers. Nilsson shall also serve on the
Flextronics Executive Operating committee which will overview the world-wide
manufacturing facilities of Flextronics including the Company's US
manufacturing facilities.
3. Fees. The fees for the foregoing services shall be paid in
Swedish kronor at the rate of SEK 7.64 to the USD 1.00 and in the following
manner:
(i) $150,000 before 3/31/97,
(ii) $210,000 on or before 4/15/97, for special efforts related to
and so long as the aforementioned transaction is concluded by
3/31/97,
(iii) $210,000 on or before 9/15/97, and
<PAGE> 2
(iv) $205,000 on or before 4/15/98.
On 4/15/97 the Company will make an interest free loan to Nilsson of
$415,000 to be repaid in two payments of $210,000 on 9/15/97 and $205,000 on
4/15/98.
If this Agreement is still in effect and should for any reason the
amounts due for payment on 9/15/97 and 4/15/98 as described above not be
released to Nilsson he shall no longer be deemed to be in debt to the Company
for the corresponding part of the loan.
4. Taxes and charges. Nilsson shall be responsible for due
reporting and payments of his own individual income taxes and charges on all
remunerations. Any other liability for taxes and charges shall be the
responsibility of the Company.
5. Reimbursement of Expenses. Company will, in accordance with
Company's policies in effect from time to time, reimburse Nilsson for all
reasonable business expenses incurred by Nilsson in connection with the
performance of services under this Agreement, including, without limitation,
reasonable expenditures for business entertainment and travel, upon submission
of the required documentation.
6. Confidential and Proprietary Information. Nilsson may be
given access to certain confidential and proprietary information, including
trade secrets, of the Company. Nilsson agrees to preserve in strict confidence
all such information during the term hereof and as long thereafter as the
information received is not in the public domain and except as hereinbefore
provided, he will not use, disclose or in any other way use this information
except as directed in writing by duly authorized representative of the Company.
7. Termination of Agreement.
(a) For Cause, Company may terminate this Agreement at
any time for "cause", effective immediately upon written notice to Nilsson,
without prejudice to any other remedy to which Company may be entitled under
this Agreement. As used in this Subsection 6(a), "cause" will mean (i) an
intentional tort so as to cause loss, damage or injury to the property,
reputation of Company or the Group, (ii) any crime or act of fraud or
dishonesty against Company or the Group, (iii) the commission of a felony, (iv)
Nilsson's non-performance of the services, (v) the disregard of the policies of
Company or the Group so as to cause loss, damage or injury to the property,
reputation of Company or the Group, or (vi) any other material breach of this
Agreement including without limitation a breach of Section 6.
In the event of any termination for cause, Company will have no
obligation to pay any further fees whatsoever. If the termination of this
Agreement is later determined not to have been for cause, the termination will
be deemed to be a termination without cause pursuant to Subsection 7(c) and
Nilsson's sole remedy under this Agreement will be that set forth in Subsection
7(c).
(b) Upon death or Disability. Company may terminate this
Agreement upon written notice if Nilsson dies or suffers any physical or mental
disability preventing the substantial performance of the services under this
Agreement for a period of three (3)
2
<PAGE> 3
consecutive months. In the event of any termination due to death or disability
under this Subsection 7(b), the Company shall pay the fees at the times such
payments would have been due Nilsson pursuant to Section 3 of this Agreement
for the remainder of the Period.
(c) Termination by Company other than for "Cause". Company may
terminate this Agreement at any time for any reason or no reason as it deems
appropriate in its sole discretion; provided, however, that in the event such
termination is not due to death, disability or "cause", then Nilsson, as his
sole remedy at under this Agreement, will continue to be paid the fees
described in Section 3 at the times such payments would have been due Nilsson
pursuant to Section 3 of this Agreement for the remainder of the Period.
(d) Survival. Nilsson's obligations under Sections 4 and 6 of
this Agreement will survive the termination of this Agreement.
8. Miscellaneous.
(a) Notices. Any and all notices permitted or required under this
Agreement must be in writing. Notices will be deemed given (i) when received.
(ii) one day after having been sent by commercial overnight courier with
written verification of receipt, or (iii) five (5) days after having been sent
by registered or certified mail, return receipt requested, postage prepaid,
whichever occurs first, at the addresses set forth below or at any new address,
notice of which has been given under this Section:
If Company:
Flextronics International USA, Inc.
2241 Lundy Avenue
San Jose, CA 95131
USA
Attn: Chief Executive Officer
If to Nilsson:
Vastra Sjogatan 4
392 32 KALMAR
SWEDEN
(b) Amendments. This Agreement contains the entire agreement and
supersedes all prior agreements between Company and Nilsson regarding the
services, and may not be changed or modified in whole or in part except by a
writing signed by the party against whom enforcement of the change or
modification is sought.
(c) Successors and Assigns. This Agreement is not assignable by
either Nilsson or Company, except that the rights and obligations of Company
under this Agreement may be assigned to a corporation which becomes the
successor to Company as the result of a merger or other corporate
reorganization and which continues the business of Company, or the Group.
3
<PAGE> 4
(d) Governing Law. This Agreement will be governed by and
interpreted according to the substantive laws of California without regard to
such country's conflicts law.
(e) No Waiver. The failure of either party to insist on strict
compliance with any of the terms of this Agreement will not be deemed to be a
waiver of any term of this Agreement or of that party's right to require strict
compliance with the terms of this Agreement in any other instance.
(f) Severability. Nilsson and Company recognize that the
limitations contained herein are reasonably and properly required for the
adequate protection of the interest of Company. If for any reason a court of
competent jurisdiction or binding arbitration proceeding finds any provision of
this Agreement, or the application thereof, to be unenforceable, the remaining
provisions of this Agreement will be interpreted so as best to reasonably
effect the intent of the parities. The parties further agree to replace any
such invalid or unenforceable provisions with valid and enforceable provisions
designed to achieve, to the extent possible, the business purposes and intent
of such unenforceable provisions.
(g) Counterparts. This Agreement may be executed in one or more
counterparts, each of which when taken together shall constitute one original.
Any copy of this Agreement with the original signatures of all parties appended
shall constitute an original.
(h) Independent Review. Nilsson acknowledges that Nilsson has had
an opportunity to consult with independent legal counsel of Nilsson's own
choosing with regard to the terms of this Agreement, and enters into this
Agreement voluntarily and with a full understanding of its terms.
(i) Effect of Agreement. This Agreement will be void and have no
effect if the Effective Date does not occur on or before 30 April 1997.
IN WITNESS WHEREOF, this Agreement is made and effective as of the
Effective Date.
Flextronics International USA, Inc. NILSSON
By:_______________________________ __________________________
Title: __________________________ __________________________
4
<PAGE> 1
EXHIBIT 10.31
PROMISSORY NOTE
SEK 3,170,600
SAN JOSE, CALIFORNIA
APRIL 15, 1997
FOR VALUE RECEIVED, Ronny Nilsson ("Borrower"), intending to
be legally bound hereby, promises to pay to FLEXTRONICS INTERNATIONAL USA,
INC., a California corporation ("Payee") the principal sum of Three Million One
Hundred Seventy Thousand Six Hundred Swedish Kronor (SEK 3,170,600) in
accordance with the following schedule of payment dates:
a) SEK 1,604,400 on 9/15/97, and
b) SEK 1,566,200 on 4/15/98
Borrower shall have the right to prepay all or any portion of
the amount outstanding hereunder at any time without penalty.
If Borrower shall fail to pay the amounts due on each of the
payment dates, Payee shall be entitled to exercise its remedies under this Note
or otherwise available to it at law or in equity. The remedies of Payee shall
be cumulative and concurrent, and may be pursued singly, successively or
together at the sole discretion of Payee, and may be exercised as often as
occasion therefor shall occur; and the failure to exercise any such right or
remedy shall in no event be construed as a waiver or release thereof.
In any action brought by Payee to enforce payment hereunder or
to enforce or defend any provision hereof, Borrower agrees to reimburse Payee
for all costs incurred in connection therewith, including attorneys' fees and
disbursements.
This Note is executed by the Borrower in conjunction with the
Services Agreement by and between Borrower and Payee in effect on the date of
this Note. This Note shall be governed by and construed in accordance with the
laws of the State of California. This Note may not be assigned to any third
party.
IN WITNESS WHEREOF, Borrower intending to be legally bound
hereby, has caused this Note to be executed as of the day and year first above
written.
___________________________
Ronny Nilsson
1
<PAGE> 1
EXHIBIT 10.32
March 27, 1997
FLEXTRONICS INTERNATIONAL LTD at Block 514, Chai Chee Lane. #04-13, Bedok
Industrial Estate, Singapore 469029
ASTRON TECHNOLOGIES LIMITED at 6th Floor, Li Wan Po House, 12, Remy Ollier
Street, Port Louis, Mauritius
CROTON TECHNOLOGY LTD at La Motte Chambers, St Helier, Jersey JE6 1BJ, Channel
Islands
Re: Termination of Services Agreement
Dear Sirs:
This letter, (i) unconditionally terminates that certain Services
Agreement (the "Service Agreement") made the 2nd February 1996 by and between
Flextronics International Ltd. a company incorporated in Singapore ("FIL"),
Astron Technologies Limited, a company incorporated in Mauritius (the
"Company"), and Croton Technology Ltd. a company incorporated in the Channel
Islands (the "Consultant") and (ii) provides for the payment by the Company of
certain amounts to the Consultant, in lieu of certain payment obligations
previously set forth in the Service Agreement. Capitalised terms not otherwise
defined in this letter shall have the same meanings that such capitalised terms
have in the Service Agreement.
1. Subject to the terms set out in this letter, FIL, the Company and
the Consultant each hereby agree effective March 27, 1997, to terminate the
Service Agreement. FIL, the Company and the Consultant each hereby
unconditionally release each other from all further liabilities and obligations
arising under and pursuant to the Service Agreement whether arising prior to or
after the said termination or whether or not expressed in the Agreement to
continue following termination thereof.
2. In consideration of the Consultant agreeing to the early
termination of the Service Agreement and the mutual convenants herein
contained, the Company hereby irrevocably and unconditionally agrees to pay to
the Consultant a lump sum payment of US$14,000,000 (the "Lump Sum Payment") on
June 30, 1998. The payment of the first US$5,000,000 of the Lump Sum Payment
shall be made in cash and the remainder amount of US$9,000,000 of the Lump Sum
Payment shall be made in cash or FIL Shares (as defined below) or in part in
cash and in part in FIL Shares, at the option of FIL, and if any portion
thereof is made in FIL Shares, such number of FIL Shares as shall be derived
from dividing the cash value of that portion to be made in FIL Shares by the
FIL Average Share Price (as defined below)
<PAGE> 2
during the 21 Trading Days immediately preceding the issue date of such FIL
Shares. Should such payment be made in FIL shares, FIL agrees to enter into a
Registration Rights Agreement with the Consultant substantially in the form
attached hereto. "FIL Shares" means ordinary shares of Singapore Dollar 0.01
each in the capital of FIL. "FIL Average Share Price" means the average of
the "closing price" per FIL Share on each of the 21 Trading Days referred to
herein. On any such Trading Day, the "closing price" per FIL share means last
sale price, as reported through the NASDAQ National Market, or if no sale
occurred on any such Trading Day, the average of the highest closing "bid"
price and the lowest closing "asked" price on such Trading Day as reported
through NASDAQ National Market. The Lump Sum Payment shall be made in
accordance with this paragraph 2 at such place and by such method of payment as
the Consultant shall direct in writing to the Company.
3. In consideration of the Company agreeing to the early termination
of the Service Agreement and the mutual covenants herein contained, FIL hereby
irrevocably and unconditionally covenants and agrees to:
(i) guarantee the due and punctual payment of the Lump Sum
Payment by the Company hereunder and to pay the Consultant within 14 days from
30 June 1998, being the date on which the Lump Sum Payment is due and payable
to the Consultant in accordance with the terms and conditions hereof, and
(ii) as a primary obligation, to indemnify the Consultant
against all costs, losses or damages incurred by it as a result of the failure
by the Company to pay the Lump Sum Payment in accordance with paragraph 2 above
together with all expenses which the Consultant may incur in proceeding against
the Company or FIL hereunder.
<PAGE> 3
By signing below, the undersigned parties agree to the foregoing
termination of the Service Agreement and to the other terms hereof, effective
as of March 27th, 1997.
ASTRON TECHNOLOGIES LIMITED
By: /s/ Tsui Sung Lam
----------------------------------
Name: S.L. Tsui
----------------------------------
Title: Director
----------------------------------
FLEXTRONICS INTERNATIONAL LTD.
By: /s/ Robert Dykes
----------------------------------
Name: Robert Dykes
----------------------------------
Title: Senior Vice President
----------------------------------
CROTON TECHNOLOGY LTD
By: /s/ Michael Figueredo
---------------------------------
Name: Michael Figueredo
---------------------------------
Title: Director
---------------------------------
<PAGE> 1
Exhibit 10.33
March 27, 1997
Astron Group Limited at 10/F., Fu Cheung Centre, 5-7 Wong Chuk Yeung Street, Fo
Tan, Shatin, N.T. Hong Kong.
Stephen Rees at Rockcliff, Lot 208 DD229, Clearwater Bay Road, Sai Kung, Hong
Kong.
Re: Termination of Supplemental Services Agreement
Dear Mr. Rees:
This letter unconditionally terminates that certain Supplemental
Service Agreement (the "Supplemental Service Agreement") made the 2nd
February, 1996 by and between Astron Group Ltd (the "Company") and Stephen
Rees ("SR").
The Company and SR each hereby agree, effective March 27th, 1997 to
terminate the Supplementary Service Agreement. The Company and SR each hereby
unconditionally release each other from all other liabilities and obligations
pursuant to the Supplemental Service Agreement whether such obligations arise
prior to or after such termination and whether or not the same are expressed in
the said Agreement to continue following termination.
By signing below, the undersigned parties agree to the foregoing
termination of the Supplemental Service Agreement.
The common seal of )
Astron Group Limited )
was hereto affixed in )__________________
the presence of: )
- ---------------------
Signed, sealed and delivered )
by the said Stephen Rees )
in the presence of: )__________________
- ---------------------
<PAGE> 1
EXHIBIT 10.34
THIS AGREEMENT IS MADE on the 24th day of April 1997 One Thousand Nine Hundred
and Ninety Seven
BETWEEN:
(1) FLEXTRONICS SINGAPORE PTE LIMITED, a Company incorporated in Singapore and
having its business office at 514, Chai Chee Lane, 04-13, Singapore 469029
("the Company") and
(2) Goh Chan Peng of 33, Hillview Crescent, Singapore 669449, ("the Executive")
WHEREBY IT IS AGREED AS FOLLOWS:-
SOURCE OF EMPLOYMENT
1. The Company shall employ the Executive and the Executive shall serve the
Company as the Senior Vice President of Finance and Operations -- Asia Pacific,
and in such capacity the Executive shall hold the office of the Senior Vice
President of Finance and Operations -- Asia Pacific for the period and upon
and subject to the terms and conditions hereinafter contained.
2. As Senior Vice President of Finance and Operations -- Asia Pacific of the
Company the Executive shall devote his time, attention and skill substantially
to the affairs of the Company and its subsidiaries and in the discharge of his
duties hereunder;
(i) in undertaking such duties and exercising such powers in relation to the
Company and its business as the Board of Directors of the Company ("the Board")
shall from time to time reasonably assign to or vest in him;
(ii) in the discharge of such duties and in the exercise of such powers conform
to, observe and comply with all resolutions, regulations and directions from
time to time made or given by the Board; and
(iii) undertake to do such other and additional work as may reasonably be
requested of him and to perform such services for the Company, its subsidiaries
and/or associated companies (collectively, the Group) as the Board may
reasonably require from time to time.
3. In relation to Clause 2 (iii), the Executive shall also discharge the duties
of Senior Vice President of Finance and Operations of Astron Technologies Ltd.
("Astron") and in this regard, shall discharge such duties and exercise such
powers as the Board of Directors of the company and the Board of Directors of
Astron shall determine from time to time and in connection therewith the
Executive shall be required to enter into a separate service agreement with
Astron.
LOCATION
4. The Executive shall be based in Singapore (and his benefits under this
Agreement shall be made available to him in Singapore unless otherwise directed
by or on behalf of the Company), but shall be available to travel on the
business of the Group to any other country for such periods of time as the
Company may require. The Executive shall have the discretion to determine the
travel schedule which is in the best interest of the Group.
5. Notwithstanding any other provision of this Agreement, it is agreed that any
change of the location of the Executive's employment from Singapore for a
period exceeding one month would require his prior approval.
<PAGE> 2
OVERSEAS ACCOMMODATION
6. For so long as the location of the Executive's employment with the Group
is in a country other than Singapore, the Company shall ensure that he is
provided with suitable accommodation commensurate with his position in the
Company. The Executive shall in addition be reimbursed for the cost of utilities
at such accommodation to include reasonable public utilities, telephone charges
and domestic service charges.
TERM OF AGREEMENT
7. This Agreement and all the provision herein contained (either expressly
or by implication shall come into force as from April 1, 1997 and shall
continue for a term of 3 years and therefore renewed with mutual consent for a
period to be determined between the Company and the Executive subject to earlier
termination as provided in clause 18 hereof.
SALARY
8. Subject as hereinafter provided the Company shall pay to the Executive
during the continuance of this employment hereunder a salary at the sum of
Singapore Dollars S$ 152,581.00 per year (inclusive of annual Wage Supplement of
one month) which said salary is inclusive of any sum receivable as other
remuneration from the Company (or such higher amount as may from time to time be
agreed by the parties or determined upon and notified to the Executive by the
Company). In the event of any increase of salary being so agreed or notified
such increase shall thereafter have effect as if it were specially provided
for as a term of this Agreement. The said salary (less any deductions as shall
be required by law to be made for contributions to the Central Provident Fund)
shall be payable in arrears by equal installments on the last of each month.
9. In addition to the Executive's salary, the Executive shall, in respect
of each financial year, be entitled to a profit sharing bonus payment in
accordance with the prevailing Company policy.
10. With respect to any period of the said employment embracing only part of
a financial year, the Company shall pay to the Executive for every week or part
thereof of such period variable bonus equal to one fifth second part which would
otherwise have been payable hereunder if he had served the Company during the
whole of such financial year.
11. The Executive shall be entitled to benefits-in-kind in accordance with
the prevailing policies and guidelines of the Company and commensurate with his
position as Senior Vice President of Finance and Operations. The Executive's
salary and benefits-in-kind and the prevailing policies and guidelines of the
Company shall be reviewed annually by the Board to ascertain, in the light of
inflation or market practice, whether any increase of such salary or
benefits-in-kind is required.
MEDICAL CARE
12. The Company shall ensure that free medical care is provided to the
Executive as per the Company policy and entitlement.
INSURANCE
<PAGE> 3
13. A personal accident policy in accordance with the prevailing policy of the
Company shall be provided by the Company, the proceeds of which will be
assigned to the Executive's family.
EXPENSES
14. The Company shall reimburse the Executive in accordance with the prevailing
policies and guidelines of the Company as to the standard and travel
commensurate with the Executive's position with the Company for the following:
(i) all traveling and hotel expenses incurred whenever the Executive is
required by the Company to travel to other countries in the discharge of his
duties; and
(ii) all entertainment expenses incurred in the discharge of the Executive's
duties to the Company;
provided that reasonable evidence of any such expenditure for which
reimbursement is sought is provided.
LEAVE
15. The Executive shall be entitled to annual leave plus all local public
holiday in accordance with the prevailing policies and guidelines of the
Company.
ILLNESS
16. The Executive shall be entitled to receive his usual salary and benefits
hereunder during absence from work due to incapacity (such payment to be
inclusive of any statutory sick pay or social security benefits to which the
Executive may be entitled), provided that the Company may terminate his
employment hereunder forthwith by notice to him in writing if he is absent from
work on account of incapacity for in the aggregate twenty six (26) weeks in any
one (1) calendar year. In the event that the Company does so terminate the
Executive's employment hereunder, he shall be entitled to receive the benefits
provided in Clause 20 of this Agreement.
17. In this Agreement, "incapacity" means any physical or mental illness
incapacitating the Executive from attending to his duties hereunder.
TERMINATION
18. Notwithstanding anything herein contained, the Executive's employment may
be terminated:
(i) by the Executive giving the Company not less than 12 calendar months'
notice in writing or payment in lieu of notice; or
(ii) by the Company giving to the Executive not less than 12 calendar months'
notice in writing or payment in lieu of notice.
PAYMENTS ON CESSATION OF EMPLOYMENT
19. In the event that the Executive's employment with the Company is determined
pursuant to Clause 18(i) above, the Executive shall be entitled to;
3
<PAGE> 4
(i) be paid an amount equal to his annual remuneration (inclusive of the
Annual Wage Supplement of one month) in 12 equal installments, the first
installment to be paid on the date falling 30 days after the Executive's last
day of service with the Company; and
(ii) the medical benefits accorded to a person of his status (or equivalent
status) in the Company for a period of 12 months after his last day of service
with the Company.
20. In the event that the Executive's employment with the Company is determined
pursuant to Clause 18(ii) above or where without the Executive's consent, (a)
he suffers a loss of status or position within the Company and/or (b) a
substantial reduction or change (whether actual, constructive or otherwise) of
the Executive's functions and responsibilities hereunder and/or (c) his
relocation from Singapore (other than voluntary relocation), the Executive
shall be entitled, in addition to any payment in lieu of notice, to be paid a
lump sum payment upon cessation of employment equal to the sum derived by the
application of one month's salary for every year of service or part thereof
with the company. For the purpose of this Clause 20, the Executive's service
with the Company shall be deemed to have commenced May 12, 1982.
SUBSTITUTION
21. This Agreement is in substitution of all previous contracts of service
between the Company and the Executive which shall be deemed to have been
terminated by mutual consent as from the date on which this Agreement commences.
SEVERABILITY
22. In case any provision in this Agreement shall be or at any time become
invalid illegal or unenforceable in any respect under any law, such invalidity,
illegality or unenforceability shall not in any way affect other provision of
this Agreement but this Agreement shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein.
JURISDICTION
23. This Agreement is governed by and shall be construed in accordance with,
the laws of Singapore, and the parties hereby submit to the non-exclusive
jurisdiction of the courts of the Republic of Singapore.
AS WITNESS the hands of the parties hereto
SIGNED BY
for and on behalf of to the )/s/ Michael Marks
the Company in the presence of )
SIGNED BY THE EXECUTIVE )/s/ Goh Chan Peng
)
<PAGE> 1
Exhibit 10.35
THIS AGREEMENT IS MADE on the 24th day of April 1997 One Thousand Nine Hundred
and Ninety Seven (1997)
Between:
(1) Astron Technologies Limited, a Company incorporated in Mauritius and having
its registered office at 6th Floor, Li Wan Po House, 12 Remy Ollier Street,
Port Louis, Mauritius ("the Company") and
(2) Goh Chan Peng of 33, Hillview Crescent, Singapore 669449 ("the Executive")
WHEREBY IT IS AGREED AS FOLLOWS:
SOURCE OF EMPLOYMENT
1. The Company shall employ the Executive and the Executive shall serve
the Company as the Senior Vice President of Finance and Operations and in such
capacity the Executive shall hold the office of the Senior Vice President of
Finance and Operations for the period and upon and subject to the terms and
conditions hereinafter contained.
2. As Senior Vice President of Finance and Operations of the Company the
Executive shall devote his time, attention and skill substantially to the
affairs of the Company and its subsidiaries and in the discharge of his duties
hereunder.
(i) In undertaking such duties and exercising such powers in relation to
the Company and its business as the Board of Directors of the Company ("the
Board") shall from time to time reasonably assign to or vest in him;
(ii) in the discharge of such duties and in the exercise of such powers
conform to, observe and comply with all resolutions, regulations and directions
from time to time made or given by the Board; and
(iii) undertake to do such other and additional work as may reasonably be
requested of him and to perform such services for the Company, its subsidiaries
and/or associated companies (collectively, the Group) as the Board may
reasonably require from time to time.
LOCATION
3. The Executive shall be available to travel on the business of the
Group to any other country for such periods of time as the Company may require
and to attend meetings of the Board as and when deemed necessary by the Board
in Mauritius. The Executive shall have the discretion to determine the travel
schedule which is in the best interest of the Group.
TERM OF AGREEMENT
4. This Agreement and all the provisions herein contained (either
expressly or by implication shall come into force as from April 1, 1997 and
shall continue for a term of 3 years and thereafter renewed with mutual consent
for a period to be determined between the Company and the Executive subject to
earlier termination as provided in clause 17 hereof.
SALARY
<PAGE> 2
5. Subject as hereinafter provided the Company shall pay to the Executive
during the continuance of this employment hereunder a salary at the sum of
Singapore Dollars $$ 151,918.00 per year (inclusive of Annual bonus payment of
one month) which said salary is inclusive of any sum receivable as other
remuneration from the Company (or such higher amount as may from time to time be
agreed by the parties or determined upon and notified to the Executive by the
Company). In the event of any increase of salary being so agreed or notified
such increase shall thereafter have effect as if it were specifically provided
for as a term of this Agreement. The said salary shall be payable in arrears by
equal instalments on the last of each month.
6. In addition to the Executive's salary, the Executive shall, in respect
of each financial year, be entitled to a profit sharing bonus payment in
accordance with the prevailing Company policy.
7. With respect to any period of the said employment embracing only part
of a financial year, the Company shall pay to the Executive for every week or
part thereof of such period variable bonus equal to one fifty second part which
would otherwise have been payable hereunder if he had served the Company during
the whole of such financial year.
8. The Executive shall be entitled to benefits-in-kind in accordance with
the prevailing policies and guidelines of the Company and commensurate with his
position Senior Vice President of Finance and Operations. The Executive's
salary and benefits-in-kind and the prevailing policies and guidelines of the
Company shall be reviewed annually by the board to ascertain, in the light of
inflation or market practice, whether any increase of such salary or
benefits-in-kind is required. In addition, the Executive shall continue to be
entitled to participate in the employee stock option plan of Flextronics
International Ltd. ("FIL") or any successor scheme.
MEDICAL CARE
9. The Company shall ensure that free medical care is provided to the
Executive as per the Company policy and entailment.
INSURANCE
10. A personal accident policy in accordance with the prevailing policy of
the Company shall be provided by the Company, the proceeds of which will be
assigned to the Executive's family.
EXPENSES
11. The Company shall reimburse the Executive in accordance with the
prevailing policies and guidelines of the Company as to the standard and travel
commensurate with the Executive's position with the Company for the following:
(i) all traveling and hotel expenses incurred whenever the Executive is
required by the Company to travel to other countries in the discharge of his
duties; and
(ii) all entertainment expenses incurred in the discharge of the Executive's
duties to the Company;
provided that reasonable evidence of any such expenditure for which
reimbursement is sought is provided.
LEAVE
12. The Executive shall be entitled to annual leave plus all local public
holiday in accordance with the prevailing policies and guidelines of the
Company.
2
<PAGE> 3
ILLNESS
13. The Executive shall be entitled to receive his usual salary and benefits
hereunder during absence from work due to incapacity (such payment to be
inclusive of any statutory sick pay or social security benefits to which the
Executive may be entitled), provided that the Company may terminate his
employment hereunder forthwith by notice to him in writing if he is absent from
work on account of incapacity for in the aggregate twenty six (26) weeks in any
one (1) calendar year. In the event that the Company does so terminate the
Executive's employment hereunder, he shall be entitled to receive the benefits
provided in Clause 17 of this Agreement.
14. In this Agreement, "incapacity" means any physical or mental illness
incapacitating the Executive from attending to his duties hereunder.
TERMINATION
15. Notwithstanding anything herein contained, the Executive's employment may
be terminated:-
(i) by the Executive giving the Company not less than 12 calendar months'
notice in writing or payment in lieu of notice; or
(ii) by the Company giving to the Executive not less than 12 calendar months'
notice in writing or payment in lieu of notice.
PAYMENTS ON CESSATION OF EMPLOYMENT
16. In the event that the Executive's employment with the Company is
determined pursuant to Clause 15(i) above, the Executive shall be entitled to:-
(i) be paid an amount equal to his annual remuneration (inclusive of the Annual
Wage Supplement of one month) in 12 equal installments, the first installment
to be paid on the date falling 30 days after the Executive's last day of
service with the Company; and
(ii) the medical benefits accorded to a person of his status (or equivalent
status) in the Company for a period of 12 months after his last day of service
with the Company.
17. In the event that the Executive's employment with the Company is determined
pursuant to Clause 15(ii) above or where without the Executive's consent, he
suffers (a) a loss of status or position within the Company and/or (b) a
substantial reduction or change (whether actual, constructive or otherwise) of
the Executive's functions and responsibilities hereunder and/or (c) he is
relocated from Singapore (other than voluntary relocation), the Executive shall
be entitled, in addition to any payment in lieu of notice, to be paid a lump sum
payment upon cessation of employment equal to the sum derived by the application
of one month's salary for every year of service or part thereof with the
Company. For the purpose of this Clause 17, the Executive's service with the
Company shall be deemed to have commenced on May 12, 1982.
18. In the event that the Executive's employment with the Company or
Flextronics Singapore Pte Ltd is terminated for any reason whatsoever, all
outstanding stock option (whether restricted or otherwise) of the Executive
granted pursuant to any employee stock option plan of FIL for the time being in
force (the "Stock Option") shall immediately vest and the Executive shall be
entitled to exercise the Stock Options as from the date of such termination and
for the purposes of this Clause 18, the "date of such termination" shall be the
date of a written notice of termination executed by the Company.
3
<PAGE> 4
SUBSTITUTION
19. This Agreement is in substitution of all previous contracts of service
between the company and the Executive which shall be deemed to have been
terminated by mutual consent as from the date on which this Agreement commences.
SEVERABILITY
20. In case any provision in this Agreement shall be or at any time become
invalid illegal or unenforceable in any respect under any law, such invalidity,
illegality or uneforceability shall not in any way affect other provision of
this Agreement but this Agreement shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein.
JURISDICTION
21. This Agreement is governed by and shall be construed in accordance with,
the laws of United Kingdom and the parties hereby submit to the non-exclusive
jurisdiction of the courts of the Republic of Singapore.
AS WITNESS the hands of the parties hereto
SIGNED BY /s/ Michael Marks
for and on behalf of to the
the Company in the presence of:
SIGNED BY THE EXECUTIVE /s/ Goh Chan Peng
in the presence of:
<PAGE> 1
EXHIBIT 10.36
THIS AGREEMENT IS MADE on the 24th day of April 1997 One Thousand Nine Hundred
and Ninety Seven (1997)
BETWEEN:
(1) Astron Technologies Limited, a Company incorporated in Mauritius and
having its registered office at 6th Floor, Li Wan Po House, 12 Remy Ollier
Street, Port Louis, Maurities ("the Company") and
(2) Tsui Sung Lam of 69, Jalan Woodbridge, Singapore 799013 ("the Executive")
WHEREBY IT IS AGREED AS FOLLOWS:
SOURCE OF EMPLOYMENT
1. The Company shall employ the Executive and the Executive shall serve the
Company as the President, and in such capacity the Executive shall hold the
office of the President for the period and upon and subject to the terms and
conditions hereinafter contained.
2. As President of the Company the Executive shall devote his time, attention
and skill substantially to the affairs of the Company and its subsidiaries and
in the discharge of his duties hereunder:
(i) in undertaking such duties and exercising such powers in relation to the
Company and its business as the Board of Directors of the Company ("the Board")
shall from time to time reasonably assign to or vest in him;
(ii) in the discharge of such duties and in the exercise of such powers conform
to, observe and comply with all resolutions, regulations and directions from
time to time made or given by the Board; and
(iii) undertake to do such other and additional work as may reasonably be
requested of him and to perform such services for the Company, its subsidiaries
and/or associated companies (collectively, the Group) as the Board may
reasonably require from time to time.
LOCATION
3. The Executive shall be available to travel on the business of the Group to
any other country for such periods of time as the Company may require and to
attend meetings of the Board as and when deemed necessary by the Board in
Mauritius. The Executive shall have the discretion to determine the travel
schedule which is in the best interest of the Group.
TERM OF AGREEMENT
4. This Agreement and all the provision herein contained (either expressly or
by implication shall come into force as from April 1, 1997 and shall continue
for a term of 3 years and thereafter renewed with mutual consent for a period
to be determined between the Company and the Executive subject to earlier
termination as provided in clause 17 hereof.
SALARY
5. Subject as hereinafter provided the Company shall pay to the Executive
during the continuance of this employment hereunder a salary at the sum of
Singapore Dollars S$214,500.00
<PAGE> 2
per year (inclusive of Annual bonus payment of one month) which said salary is
inclusive of any sum receivable as other remuneration from the Company (or such
higher amount as may from time to time be agreed by the parties or determined
upon and notified to the Executive by the Company). In the event of any
increase of salary being so agreed or notified such increase shall thereafter
have effect as if it were specifically provided for as a term of this
Agreement. The said salary shall be payable in arrears by equal instalments on
the last of each month.
6. In addition to the Executive's salary, the Executive shall, in respect
of each financial year, be entitled to a profit sharing bonus payment in
accordance with the prevailing Company policy.
7. With respect to any period of the said employment embracing only part of a
financial year, the Company shall pay to the Executive for every week or part
thereof of such period variable bonus equal to one fifty second part which
would otherwise have been payable hereunder if he had served the Company during
the whole of such financial year.
8. The Executive shall be entitled to benefits-in-kind in accordance with the
prevailing policies and guidelines of the Company and commensurate with his
position as President. The Executive's salary and benefits-in-kind and the
prevailing policies and guidelines of the Company shall be reviewed annually by
the Board to ascertain, in the light of inflation or market practice, whether
any increase of such salary or benefits-in-kind is required. In addition, the
Executive shall continue to be entitled to participate in the employee stock
option plan of Flextronics International Ltd ("FIL") or any successor scheme.
MEDICAL CARE
9. The Company shall ensure that free medical care is provided to the
Executive as per the Company policy and entailment.
INSURANCE
10. A personal accident policy in accordance with the prevailing policy of the
Company shall be provided by the Company, the proceeds of which will be
assigned to the Executive's family.
EXPENSES
11. The Company shall reimburse the Executive in accordance with the
prevailing policies and guidelines of the Company as to the standard and travel
commensurate with the Executive's position with the Company for the following:
(i) all traveling and hotel expenses incurred whenever the Executive is
required by the Company to travel to other countries in the discharge of his
duties; and
(ii) all entertainment expenses incurred in the discharge of the Executive's
duties to the Company;
provided that reasonable evidence of any such expenditure for which
reimbursement is sought is provided.
LEAVE
12. The executive shall be entitled to annual lease plus all local public
holiday in accordance with the prevailing policies and guidelines of the
Company.
2
<PAGE> 3
ILLNESS
13. The Executive shall be entitled to receive his usual salary and benefits
hereunder during absence from work due to incapacity (such payment to be
inclusive of any statutory sick pay or social security benefits to which the
Executive may be entitled), provided that the Company may terminate his
employment hereunder forthwith by notice to him in writing if he is absent from
work on account of incapacity for in the aggregate twenty six (26) weeks in any
one (1) calendar year. In the event that the Company does so terminate the
Executive's employment hereunder, he shall be entitled to receive the benefits
provided in Clause 17 of this Agreement.
14. In this Agreement, "incapacity" means any physical or mental illness
incapacitating the Executive from attending to his duties hereunder.
TERMINATION
15. Notwithstanding anything herein contained, the Executive's employment
may be terminated:-
(i) by the Executive giving the Company not less than 12 calendar months'
notice in writing or payment in lieu of notice; or
(ii) by the Company giving to the Executive not less than 12 calendar
months' notice in writing or payment in lieu of notice.
PAYMENTS ON CESSATION OF EMPLOYMENT
16. In the event that the Executive's employment with the Company is
determined pursuant to Clause 15(i) above, the executive shall be entitled to:-
(i) be paid an amount equal to his annual remuneration (inclusive of the
Annual Wage Supplement of one month) in 12 equal installments, the first
installment to be paid on the date falling 30 days after the Executive's last
day of service with the Company; and
(ii) the medical benefits accorded to a person of his status (or equivalent
status) in the Company for a period of 12 months after his last day of service
with the Company.
17. In the event that the Executive's employment with the Company is
determined pursuant to Clause 15(ii) above or where without the Executive's
consent, he suffers (a) a loss of status or position within the Company and/or
(b) a substantial reduction or change (whether actual, constructive or
otherwise) of the Executive's functions and responsibilities hereunder and/or
(c) he is relocated from Singapore (other than voluntary relocation), the
Executive shall be entitled, in addition to any payment in lieu of notice, to
be paid a lump sum payment upon cessation of employment equal to the sum
derived by the application of one month's salary for every year of service or
part thereof with the Company. For the purpose of this Clause 17, the
Executive's service with the Company shall be deemed to have commenced on March
1, 1982.
18. In the event that the Executive's employment with the Company or
Flextronics Singapore Pte Ltd is terminated for any reason whatsoever, all
outstanding stock option (whether restricted or otherwise) of the Executive
granted pursuant to any employee stock option plan of FIL for the time being in
force (the "Stock Option") shall immediately vest and the Executive shall be
entitled to exercise the Stock Options as from the date of such termination and
for the purposes of this Clause 18, the "date of such termination" shall be the
date of a written notice of termination executed by the Company.
SUBSTITUTION
3
<PAGE> 4
19. This Agreement is in substitution of all previous contracts of service
between the Company and the Executive which shall be deemed to have been
terminated by mutual consent as from the date on which this Agreement commences.
SEVERABILITY
20. In case any provision in this Agreement shall be or at any time become
invalid, illegal or unenforceable in any respect under any law, such
invalidity, illegality or unenforceability shall not in any way affect other
provision of this Agreement but this Agreement shall be construed as if such
invalid or illegal or unenforceable provision had never been contained herein.
JURISDICTION
21. This Agreement is governed by and shall be construed in accordance
with, the laws of United Kingdom and the parties hereby submit to the
non-exclusive jurisdiction of the courts of the Republic of Singapore.
AS WITNESS the hands of the parties hereto
SIGNED BY /s/ Michael Marks
for and on behalf of to the )
the Company in the presence of: )
SIGNED BY THE EXECUTIVE ) /s/ Tsui Sung Lam
)
in the presence of:
<PAGE> 1
Exhibit 10.37
THIS AGREEMENT IS MADE on the 24th day of April 1997 One Thousand Nine Hundred
and Ninety Seven
BETWEEN:
(1) FLEXTRONICS SINGAPORE PTE LIMITED, a Company incorporated in Singapore
and having its business office at 514, Chai Chee Lane, 04-13, Singapore 469029
("the Company") and
(2) Tsui Sung Lam of 69 Jalan Woodbridge, Singapore 799013 ("the
Executive")
WHEREBY IT IS AGREED AS FOLLOWS:
SOURCE OF EMPLOYMENT
1. The Company shall employ the Executive and the Executive shall serve
the Company as the President, Asia Pacific and in such capacity the Executive
shall hold the office of the President, Asia Pacific for the period and upon
and subject to the terms and conditions hereinafter contained.
2. As President, Asia Pacific of the Company the Executive shall devote
his time, attention and skill substantially to the affairs of the Company and
its subsidiaries and in the discharge of his duties hereunder:-
(i) in undertaking such duties and exercising such powers in relation to
the Company and its business as the Board of Directors of the Company ("the
Board") shall from time to time reasonably assign to or vest in him;
(ii) in the discharge of such duties and in the exercise of such powers
conform to, observe and comply with all resolutions, regulations and directions
from time to time made or given by the Board; and
(iii) undertake to do such other and additional work as may reasonably be
requested of him and to perform such services for the Company, its
subsidiaries and/or associated companies (collectively, the Group) as the Board
may reasonably require from time to time.
3. In relation to Clause 2 (iii), the Executive shall also discharge the
duties as President of Astron Technologies Ltd. ("Astron") and in this regard,
shall discharge such duties and exercise such powers as the Board of
Directors of the Company and the Board of Directors of Astron shall determine
from time to time and in connection therewith the Executive shall be required
to enter into a separate service agreement with Astron.
LOCATION
4. The Executive shall be based in Singapore (and his benefits under this
Agreement shall be made available to him in Singapore unless otherwise directed
by or on behalf of the Company), but shall be available to travel on the
business of the Group to any other country for such periods of time as the
Company may require. The Executive shall have the discretion to determine the
travel schedule which is in the best interest of the Group.
5. Notwithstanding any other provision of this Agreement, it is agreed
that any change of the location of the Executive's employment from Singapore
for a period exceeding one month would require his prior approval.
1
<PAGE> 2
OVERSEAS ACCOMMODATION
6. For so long as the location of the Executive's employment with the
Group is in a country other than Singapore, the Company shall ensure that he is
provided with suitable accommodation commensurate with his position in the
Company. The Executive shall in addition be reimbursed for the cost of
utilities at such accommodation to include reasonable public utilities,
telephone charges and domestic service charges.
TERM OF AGREEMENT
7. This agreement and all the provision herein contained (either expressly
or by implication shall come into force as from April 1, 1997 and shall
continue for a term of 3 years and thereafter renewed with mutual consent for a
period to be determined between the Company and the Executive subject to
earlier termination as provided in clause 18 hereof.
SALARY
8. Subject as hereinafter provided the Company shall pay to the Executive
during the continuance of this employment hereunder a salary at the sum of
Singapore Dollars S$214,500.00 per year (inclusive of Annual Wage Supplement
of one month) which said salary is inclusive of any sum receivable as other
remuneration from the Company (or such higher amount as may from time to time
be agreed by the parties or determined upon and notified to the Executive by
the Company). In the event of any increase in salary being so agreed or
notified such increase shall thereafter have effect as if it were specifically
provided for as a term of this Agreement. The said salary (less any deductions
as shall be required by law to be made for contributions to the Central
Provident Fund) shall be payable in arrears by equal installments on the last
of each month.
9. In addition to the Executive's salary, the Executive shall, in respect
of each financial year, be entitled to a profit sharing bonus payment in
accordance with the prevailing Company policy.
10. With respect to any period of the said employment embracing only part
of a financial year, the Company shall pay to the Executive for every week or
part thereof of such period variable bonus equal to one fifty second part which
would otherwise have been payable hereunder if he had served the Company during
the whole of such financial year.
11. The Executive shall be entitled to benefits-in-kind in accordance with
the prevailing policies and guidelines of the Company and commensurate with his
position as President, Asia Pacific. The Executive's salary and
benefits-in-kind and the prevailing policies and guidelines of the Company
shall be reviewed annually by the Board to ascertain, in the light of inflation
or market practice, whether any increase of such salary or benefits-in-kind is
required.
MEDICAL CARE
12. The Company shall ensure that free medical care is provided to the
Executive as per the Company policy and entitlement.
INSURANCE
2
<PAGE> 3
13. A personal accident policy in accordance with the prevailing
policy of the Company shall be provided by the Company, the proceeds of which
will be assigned to the Executive's family.
EXPENSES
14. The Company shall reimburse the Executive in accordance with the
prevailing policies and guidelines of the Company as to the standard and travel
commensurate with the Executive's position with the Company for the following:
(i) all traveling and hotel expenses incurred whenever the
Executive is required by the Company to travel to other countries in the
discharge of his duties; and
(ii) all entertainment expenses incurred in the discharge of the
Executive's duties to the Company;
provided that reasonable evidence of any such expenditure for which
reimbursement is sought is provided.
LEAVE
15. The Executive shall be entitled to annual leave plus all local public
holiday in accordance with the prevailing policies and guidelines of the
Company.
ILLNESS
16. The Executive shall be entitled to receive his usual salary and
benefits hereunder during absence from work due to incapacity (such payment to
be inclusive of any statutory sick pay or social security benefits to which the
Executive may be entitled), provided that the Company may terminate his
employment hereunder forthwith by notice to him in writing if he is absent from
work on account of incapacity for in the aggregate twenty six (26) weeks in any
one (1) calendar year. In the event that the Company does so terminate the
Executive's employment hereunder, he shall be entitled to receive the benefits
provided in Clause 20 of this Agreement.
17. In this Agreement, "incapacity" means any physical or mental illness
incapacitating the Executive from attending to his duties hereunder.
TERMINATION
18. Notwithstanding anything herein contained, the Executive's employment
may be terminated:-
(i) by the Executive giving the Company not less than 12 calendar
months' notice in writing or payment in lieu of notice; or
(ii) by the Company giving to the Executive not less than 12
calendar months' notice in writing or in payment in lieu of notice.
PAYMENTS ON CESSATION OF EMPLOYMENT
19. In the event that the Executive's employment with the Company is
determined pursuant to Clause 19 (i) above, the Executive shall be entitled
to:-
3
<PAGE> 4
(i) be paid an amount equal to his annual remuneration (inclusive of the Annual
Wage Supplement of one month) in 12 equal installments, the first installment
to be paid on the date falling 30 days after the Executive's last day of
service with the Company; and
(ii) the medical benefits accorded to a person of his status (or equivalent
status) in the Company for a period of 12 months after his last day of service
with the Company.
20. In the event that the Executive's employment with the Company is
determined pursuant to Clause 18(ii) above or where without the Executive's
consent, (a) he suffers a loss of status or position within the Company and/or
(b) a substantial reduction or change (whether actual, constructive or
otherwise) of the Executive's functions and responsibilities hereunder and/or
(c) his relocation from Singapore (other than voluntary relocation), the
Executive shall be entitled, in addition to any payment in lieu of notice, to
be paid a lump sum payment upon cessation of employment equal to the sum
derived by the application of one month's salary for every year of service or
part thereof with the company. For the purpose of this Clause 20, the
Executive's service with the Company shall be deemed to have commenced on March
1, 1982.
SUBSTITUTION
21. This Agreement is in substitution of all previous contracts of service
between the Company and the Executive which shall be deemed to have been
terminated by mutual consent as from the date on which this Agreement
commences.
SEVERABILITY
22. In case any provision in this Agreement shall be or at any time become
invalid, illegal or unenforceable in any respect under any law, such invalidity,
illegality or unenforceability shall not in any way affect other provision of
this Agreement but this Agreement shall be construed as if such invalid or
illegal or unenforceable provision had never been contained herein.
JURISDICTION
23. This Agreement is governed by and shall be construed in accordance with,
the laws of Singapore, and the parties hereby submit to the non-exclusive
jurisdiction of the courts of the Republic of Singapore.
AS WITNESS the hands of the parties hereto
SIGNED BY /s/ Michael Marks
for and on behalf of the )
the Company in the presence of: )
SIGNED BY THE EXECUTIVE ) /s/ Tsui Sung Lam
)
1
<PAGE> 1
EXHIBIT 10.38
FIRST AMENDMENT
TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT
First Amendment dated as of May 19, 1997 to Revolving Credit and Term
Loan Agreement (the "First Amendment"), by and among FLEXTRONICS INTERNATIONAL
LTD., a company incorporated in Singapore (the "Borrower"), BANKBOSTON, N.A.
(FORMERLY KNOWN AS THE FIRST NATIONAL BANK OF BOSTON) and the other lending
institutions listed on Schedule 1 to the Credit Agreement (as hereinafter
defined) (the "Banks"), amending certain provisions of the Revolving Credit and
Term Loan Agreement dated as of March 27, 1997 (as amended and in effect from
time to time, the "Credit Agreement") by and among the Borrower, the Banks and
BankBoston, N.A. as agent for the Banks (the "Agent"). Terms not otherwise
defined herein which are defined in the Credit Agreement shall have the same
respective meanings herein as therein.
WHEREAS, the Borrower and the Banks have agreed to modify certain
terms and conditions of the Credit Agreement as specifically set forth in this
First Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1. AMENDMENT TO SECTION 9 OF THE CREDIT AGREEMENT. Section 9 of
the Credit Agreement is hereby amended as follows:
(a) Section 9.14 of the Credit Agreement is hereby amended
by deleting the words "forty-five (45) days following the Closing
Date" which appear in Section 9.14 and substituting in place thereof
the words "June 30, 1997";
(b) Section 9.16 of the Credit Agreement is hereby amended
by deleting the words "within forty-five days following the Closing
Date" which appear in Section 9.16 and substituting in place thereof
the words "by June 30, 1997"; and
(c) Section 9.17 of the Credit Agreement is hereby amended
by deleting Section 9.17 in its entirety and restating it as follows:
9.17. PAYMENT OF ASTRON OBLIGATION. The Borrower
shall make all payments under the Astron Sales Agreement, the
Services Agreement dated February 2, 1996 between the Borrower,
Astron Technologies Limited and Stephen Rees (the "Rees Service
Agreement") and the Supplemental Services Agreement dated February
2, 1996 between Astron Group Limited and Stephen Rees (the
"Supplemental Rees Agreement") which are able to be paid pursuant
to such agreements in Astron Consideration Shares (as to the
Astron Sales Agreement) or ordinary shares of the Borrower
(pursuant to the Rees Service Agreement and Supplemental Rees
Agreement); provided, however, the Borrower shall be permitted to
make such payments in cash so long as
<PAGE> 2
Page 2
no Default or Event of Default has occurred and is continuing
and the Borrower can demonstrate to the satisfaction of the Agent
that the Leverage Ratio at the time of such cash payments is equal
to or less than 2.50:1.00 both before and after giving effect to
each such cash payment.
SECTION 2. AMENDMENT TO SECTION 27 OF THE CREDIT AGREEMENT. Section
27 of the Credit Agreement is hereby amended by inserting immediately after the
words "the amount of the Commitments of the Banks," which appear in the second
sentence of Section 27 the words "the release of any of the Guarantors, the
release of all or substantially all of the Collateral, the provisions of this
Section 27,".
SECTION 3. CONDITIONS TO EFFECTIVENESS. This First Amendment shall
not become effective until the Agent receives a counterpart of this First
Amendment, executed by the Borrower, the Guarantors and the Majority Banks.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
repeats, on and as of the date hereof, each of the representations and
warranties made by it in Section 8 of the Credit Agreement, and such
representations and warranties remain true as of the date hereof (except to the
extent of changes resulting from transactions contemplated or permitted by the
Credit Agreement and the other Loan Documents and changes occurring in the
ordinary course of business that singly or in the aggregate are not materially
adverse, and to the extent that such representations and warranties relate
expressly to an earlier date), provided, that all references therein to the
Credit Agreement shall refer to such Credit Agreement as amended hereby. In
addition, the Borrower hereby represents and warrants that the execution and
delivery by the Borrower of this First Amendment and the performance by the
Borrower of all of its agreements and obligations under the Credit Agreement as
amended hereby are within the corporate authority of each the Borrower and has
been duly authorized by all necessary corporate action on the part of the
Borrower.
SECTION 5. RATIFICATION, ETC. Except as expressly amended hereby, the
Credit Agreement and all documents, instruments and agreements related thereto,
including, but not limited to the Security Documents, are hereby ratified and
confirmed in all respects and shall continue in full force and effect. The
Credit Agreement and this First Amendment shall be read and construed as a
single agreement. All references in the Credit Agreement or any related
agreement or instrument to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended hereby.
SECTION 6. NO WAIVER. Nothing contained herein shall constitute a
waiver of, impair or otherwise affect any Obligations, any other obligation of
the Borrower or any rights of the Agent or the Banks consequent thereon.
SECTION 7. COUNTERPARTS. This First Amendment may be executed in one
or more counterparts, each of which shall be deemed an original but which
together shall constitute one and the same instrument.
SECTION 8. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REFERENCE TO CONFLICT OF LAWS).
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as a document under seal as of the date first above written.
<PAGE> 3
Page 3
FLEXTRONICS INTERNATIONAL LTD.
By:____________________________________
Title:
BANKBOSTON, N.A.
By:____________________________________
Title:
<PAGE> 4
Page 4
RATIFICATION OF GUARANTY
Each of the undersigned guarantors hereby acknowledges and consents to
the foregoing First Amendment as of May __, 1997, and agrees that each of the
Guarantees dated as of March 27, 1997 from each of the undersigned Guarantors
remain in full force and effect, and each of the Guarantors confirms and
ratifies all of its obligations thereunder.
FLEXTRONICS INTERNATIONAL USA, INC.
By:_________________________________
Title:
FLEXTRONICS INTERNATIONAL (UK) LTD.
By:_________________________________
Title:
FLEXTRONICS MANUFACTURING (HK) LTD.
By:_________________________________
Title:
FLEXTRONICS SINGAPORE PTE. LTD.
By:_________________________________
Title:
FLEXTRONICS HOLDING (UK) LTD.
By:_________________________________
Title:
FLEXTRONICS MALAYSIA SDN BHD
<PAGE> 5
Page 5
By:_________________________________
Title:
FLEXTRONICS INTERNATIONAL
MARKETING (L) LTD.
By:_________________________________
Title:
FLEXTRONICS HOLDINGS AB
By:_________________________________
Title:
FLEXTRONICS INTERNATIONAL
SWEDEN AB
By:_________________________________
Title:
ASTRON GROUP LIMITED
By:_________________________________
Title:
<PAGE> 1
EXHIBIT 10.39
FIRST AMENDMENT
TO
REVOLVING CREDIT AGREEMENT
First Amendment dated as of May 19, 1997 to Revolving Credit
Agreement (the "First Amendment"), by and among FLEXTRONICS INTERNATIONAL USA,
INC., a California corporation (the "Borrower"), BANKBOSTON, N.A. (FORMERLY
KNOWN AS THE FIRST NATIONAL BANK OF BOSTON) and the other lending institutions
listed on Schedule 1 to the Credit Agreement (as hereinafter defined) (the
"Banks"), amending certain provisions of the Revolving Credit Agreement dated as
of March 27, 1997 (as amended and in effect from time to time, the "Credit
Agreement") by and among the Borrower, the Banks and BankBoston, N.A. as agent
for the Banks (the "Agent"). Terms not otherwise defined herein which are
defined in the Credit Agreement shall have the same respective meanings herein
as therein.
WHEREAS, the Borrower and the Banks have agreed to modify certain
terms and conditions of the Credit Agreement as specifically set forth in this
First Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1. AMENDMENT TO SECTION 8 OF THE CREDIT AGREEMENT. Section 8.14
of the Credit Agreement is hereby amended by deleting the words "within
forty-five days following the Closing Date" which appear in Section 8.14 and
substituting in place thereof the words "by June 30, 1997".
SECTION 2. AMENDMENT TO SECTION 25 OF THE CREDIT AGREEMENT. Section 25
of the Credit Agreement is hereby amended by inserting immediately after the
words "the amount of the Commitments of the Banks," which appear in the second
sentence of Section 25 the words "the release of any of the Guarantors, the
release of all or substantially all of the Collateral, the provisions of this
Section 25,".
SECTION 3. CONDITIONS TO EFFECTIVENESS. This First Amendment shall not
become effective until the Agent receives a counterpart of this First Amendment,
executed by the Borrower, the Guarantors and the Majority Banks.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby repeats,
on and as of the date hereof, each of the representations and warranties made by
it in Section 7 of the Credit Agreement, and such representations and warranties
remain true as of the date hereof (except to the extent of changes resulting
from transactions contemplated or permitted by the Credit Agreement and the
other Loan Documents and changes occurring in the ordinary course of business
that singly or in the aggregate are not materially adverse, and to the extent
that such representations and warranties relate expressly to an earlier date),
provided, that all references therein to the Credit Agreement shall refer to
such Credit Agreement as amended hereby. In addition, the Borrower hereby
represents and warrants that the execution and delivery by the Borrower of this
First Amendment and the performance by the Borrower of all of its agreements and
obligations under the Credit Agreement as amended hereby are within the
corporate authority of each the Borrower and has been duly authorized by all
necessary corporate action on the part of the Borrower.
<PAGE> 2
Page 2
SECTION 5. RATIFICATION, ETC. Except as expressly amended hereby, the
Credit Agreement and all documents, instruments and agreements related thereto,
including, but not limited to the Security Documents, are hereby ratified and
confirmed in all respects and shall continue in full force and effect. The
Credit Agreement and this First Amendment shall be read and construed as a
single agreement. All references in the Credit Agreement or any related
agreement or instrument to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended hereby.
SECTION 6. NO WAIVER. Nothing contained herein shall constitute a
waiver of, impair or otherwise affect any Obligations, any other obligation of
the Borrower or any rights of the Agent or the Banks consequent thereon.
SECTION 7. COUNTERPARTS. This First Amendment may be executed in one or
more counterparts, each of which shall be deemed an original but which together
shall constitute one and the same instrument.
SECTION 8. GOVERNING LAW. THIS FIRST AMENDMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REFERENCE TO CONFLICT OF LAWS).
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as a document under seal as of the date first above written.
FLEXTRONICS INTERNATIONAL USA, INC.
By:____________________________________
Title:
BANKBOSTON, N.A.
By:____________________________________
Title:
<PAGE> 3
Page 3
RATIFICATION OF GUARANTY
Each of the undersigned guarantors hereby acknowledges and consents
to the foregoing First Amendment as of May __, 1997, and agrees that each of the
Guarantees dated as of March 27, 1997 from each of the undersigned Guarantors
remain in full force and effect, and each of the Guarantors confirms and
ratifies all of its obligations thereunder.
FLEXTRONICS INTERNATIONAL LTD.
By:________________________________
Title:
FLEXTRONICS INTERNATIONAL (UK) LTD.
By:________________________________
Title:
FLEXTRONICS MANUFACTURING (HK) LTD.
By:________________________________
Title:
FLEXTRONICS SINGAPORE PTE. LTD.
By:________________________________
Title:
FLEXTRONICS HOLDING (UK) LTD.
By:________________________________
Title:
FLEXTRONICS MALAYSIA SDN BHD
<PAGE> 4
Page 4
By:________________________________
Title:
FLEXTRONICS INTERNATIONAL
MARKETING (L) LTD.
By:________________________________
Title:
FLEXTRONICS HOLDINGS AB
By:________________________________
Title:
FLEXTRONICS INTERNATIONAL
SWEDEN AB
By:________________________________
Title:
ASTRON GROUP LIMITED
By:________________________________
Title:
<PAGE> 1
EXHIBIT 10.40
SECOND AMENDMENT
TO
REVOLVING CREDIT AND TERM LOAN AGREEMENT
Second Amendment dated as of June 30, 1997 to Revolving Credit and
Term Loan Agreement (the "Second Amendment"), by and among FLEXTRONICS
INTERNATIONAL LTD., a company incorporated in Singapore (the "Borrower"),
BANKBOSTON, N.A. (FORMERLY KNOWN AS THE FIRST NATIONAL BANK OF BOSTON) and the
other lending institutions listed on Schedule 1 to the Credit Agreement (as
hereinafter defined) (the "Banks"), amending certain provisions of the Revolving
Credit and Term Loan Agreement dated as of March 27, 1997 (as amended and in
effect from time to time, the "Credit Agreement") by and among the Borrower, the
Banks and BankBoston, N.A. as agent for the Banks (the "Agent"). Terms not
otherwise defined herein which are defined in the Credit Agreement shall have
the same respective meanings herein as therein.
WHEREAS, the Borrower and the Banks have agreed to modify certain
terms and conditions of the Credit Agreement as specifically set forth in this
Second Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1. AMENDMENT TO SECTION 1 OF THE CREDIT AGREEMENT. Section
1.1 of the Credit Agreement is hereby amended as follows:
(a) The definition of "Security Documents" is hereby amended by
inserting immediately after the words "the Security Agreements" which appear in
such definition the words "the Swedish Pledge Documents"; and
(b) Section 1.1 of the Credit Agreement is further amended by
inserting the following definitions in the appropriate alphabetical order:
Swedish Agency Agreement. The Agency Account Agreement
dated as of June 30, 1997 among Flextronics Sweden, the Agent and
Flextronics Sweden's account bank, and in form and substance
satisfactory to the Agent.
Swedish Pledge Agreement. The Pledge Agreement dated as
of June 30, 1997 between Flextronics Sweden and the Agent, which
Pledge Agreement shall be in form and substance satisfactory to the
Agent, pursuant to which Flextronics Sweden has pledged to the Agent
for the benefit of the Banks and the Agent a security interest in
its accounts receivable.
Swedish Pledge Documents. Collectively, the Swedish
Agency Agreement, the Swedish Pledge Agreement and each other
document, agreement or instrument executed in connection therewith.
<PAGE> 2
Page 2
SECTION 2. AMENDMENT TO SECTION 9 OF THE CREDIT AGREEMENT. Section
9 of the Credit Agreement is hereby amended as follows:
(a) Section 9.4(a) of the Credit Agreement is hereby
amended by deleting the words "as soon as practicable, but in any
event not later than ninety (90) days after the end of each fiscal
year of the Borrower" which appear in the first sentence of
Section 9.4(a) and substituting in place thereof the words "as soon
as practicable, but in any event not later than (i) 120 days after
the end of the 1997 fiscal year of the Borrower and (ii) 90 days
after the end of each subsequent fiscal year of the Borrower
thereafter"
(b) Section 9.14 of the Credit Agreement is hereby
amended by deleting the words "June 30, 1997" which appear in
Section 9.14 and substituting in place thereof the words "September
15, 1997";
(c) Section 9.16 of the Credit Agreement is hereby
amended by deleting the words "June 30, 1997" which appear in
Section 9.16 and substituting in place thereof the words "September
15, 1997".
SECTION 3. CONDITIONS TO EFFECTIVENESS. This Second Amendment shall
not become effective until the Agent receives the following documents:
(a) a counterpart of this Second Amendment, executed by the
Borrower, the Guarantors and the Majority Banks; and
(b) evidence satisfactory to the Agent that the Swedish Pledge
Documents have been executed and delivered by the parties thereto, all
appropriate notices have been delivered to the account debtors and all
appropriate consents have been obtained, and the Agent has a first priority
perfected security interest in the Accounts Receivable of Flextronics Sweden.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
repeats, on and as of the date hereof, each of the representations and
warranties made by it in Section 8 of the Credit Agreement, and such
representations and warranties remain true as of the date hereof (except to the
extent of changes resulting from transactions contemplated or permitted by the
Credit Agreement and the other Loan Documents and changes occurring in the
ordinary course of business that singly or in the aggregate are not materially
adverse, and to the extent that such representations and warranties relate
expressly to an earlier date), provided, that all references therein to the
Credit Agreement shall refer to such Credit Agreement as amended hereby. In
addition, the Borrower hereby represents and warrants that the execution and
delivery by the Borrower of this Second Amendment and the performance by the
Borrower of all of its agreements and obligations under the Credit Agreement as
amended hereby are within the corporate authority of each the Borrower and has
been duly authorized by all necessary corporate action on the part of the
Borrower.
SECTION 5. RATIFICATION, ETC. Except as expressly amended hereby,
the Credit Agreement and all documents, instruments and agreements related
thereto, including, but not limited to the Security Documents, are hereby
ratified and confirmed in all respects and shall continue in full force and
effect. The Credit Agreement and this Second Amendment shall be read and
construed as a single agreement. All references in the Credit Agreement or any
related agreement or instrument to the Credit Agreement shall hereafter refer to
the Credit Agreement as amended hereby.
<PAGE> 3
Page 3
SECTION 6. NO WAIVER. Nothing contained herein shall constitute a
waiver of, impair or otherwise affect any Obligations, any other obligation of
the Borrower or any rights of the Agent or the Banks consequent thereon.
SECTION 7. COUNTERPARTS. This Second Amendment may be executed in
one or more counterparts, each of which shall be deemed an original but which
together shall constitute one and the same instrument.
SECTION 8. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REFERENCE TO CONFLICT OF LAWS).
<PAGE> 4
Page 4
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as a document under seal as of the date first above written.
FLEXTRONICS INTERNATIONAL LTD.
By:____________________________________
Title:
BANKBOSTON, N.A.
By:____________________________________
Title:
ABN AMRO BANK N.V.
By:____________________________________
Title:
THE BANK OF NOVA SCOTIA
By:____________________________________
Title:
BANQUE PARIBAS
By:____________________________________
Title:
SKANDINAVISKA ENSKILDA BANKEN
CORPORATION
By:____________________________________
Title:
BANQUE NATIONALE DE PARIS, SAN
FRANCISCO BRANCH
By:____________________________________
<PAGE> 5
Page 5
Title:
By:____________________________________
Title:
COMERICA BANK
By:____________________________________
Title:
DE NATIONALE INVESTERINGSBANK ASIA
LTD.
By:____________________________________
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:____________________________________
Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY
By:____________________________________
Title:
SANWA BANK CALIFORNIA
By:____________________________________
Title:
SUMITOMO BANK OF CALIFORNIA
By:____________________________________
Title:
<PAGE> 6
Page 6
UNION BANK OF CALIFORNIA
By:____________________________________
Title:
<PAGE> 7
Page 7
RATIFICATION OF GUARANTY
Each of the undersigned guarantors hereby acknowledges and consents
to the foregoing Second Amendment as of June 30, 1997, and agrees that each of
the Guarantees dated as of March 27, 1997 from each of the undersigned
Guarantors remain in full force and effect, and each of the Guarantors confirms
and ratifies all of its obligations thereunder.
FLEXTRONICS INTERNATIONAL USA, INC.
By:__________________________________
Title:
FLEXTRONICS INTERNATIONAL (UK) LTD.
By:__________________________________
Title:
FLEXTRONICS MANUFACTURING (HK) LTD.
By:__________________________________
Title:
FLEXTRONICS SINGAPORE PTE. LTD.
By:__________________________________
Title:
FLEXTRONICS HOLDING (UK) LTD.
By:__________________________________
Title:
FLEXTRONICS MALAYSIA SDN BHD
<PAGE> 8
Page 8
By:__________________________________
Title:
FLEXTRONICS INTERNATIONAL
MARKETING (L) LTD.
By:__________________________________
Title:
FLEXTRONICS HOLDINGS AB
By:__________________________________
Title:
FLEXTRONICS INTERNATIONAL
SWEDEN AB
By:__________________________________
Title:
ASTRON GROUP LIMITED
By:__________________________________
Title:
<PAGE> 1
EXHIBIT 10.41
SECOND AMENDMENT
TO
REVOLVING CREDIT AGREEMENT
Second Amendment dated as of June 30, 1997 to Revolving Credit
Agreement (the "Second Amendment"), by and among FLEXTRONICS INTERNATIONAL USA,
INC., a California corporation (the "Borrower"), BANKBOSTON, N.A. (FORMERLY
KNOWN AS THE FIRST NATIONAL BANK OF BOSTON) and the other lending institutions
listed on Schedule 1 to the Credit Agreement (as hereinafter defined) (the
"Banks"), amending certain provisions of the Revolving Credit Agreement dated as
of March 27, 1997 (as amended and in effect from time to time, the "Credit
Agreement") by and among the Borrower, the Banks and BankBoston, N.A. as agent
for the Banks (the "Agent"). Terms not otherwise defined herein which are
defined in the Credit Agreement shall have the same respective meanings herein
as therein.
WHEREAS, the Borrower and the Banks have agreed to modify certain
terms and conditions of the Credit Agreement as specifically set forth in this
First Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1. AMENDMENT TO SECTION 1 OF THE CREDIT AGREEMENT. Section
1.1 of the Credit Agreement is hereby amended as follows:
(a) The definition of "Security Documents" is hereby amended by
inserting immediately after the words "the Security Agreements" which appear in
such definition the words "the Swedish Pledge Documents"; and
(b) Section 1.1 of the Credit Agreement is further amended by
inserting the following definitions in the appropriate alphabetical order:
Swedish Agency Agreement. The Agency Account Agreement
dated as of June 30, 1997 among Flextronics Sweden, the Agent and
Flextronics Sweden's account bank, and in form and substance
satisfactory to the Agent.
Swedish Pledge Agreement. The Pledge Agreement dated as
of June 30, 1997 between Flextronics Sweden and the Agent, which
Pledge Agreement shall be in form and substance satisfactory to the
Agent, pursuant to which Flextronics Sweden has pledged to the Agent
for the benefit of the Banks and the Agent a security interest in
its accounts receivable.
Swedish Pledge Documents. Collectively, the Swedish
Agency Agreement, the Swedish Pledge Agreement and each other
document, agreement or instrument executed in connection therewith.
<PAGE> 2
Page 2
SECTION 2. AMENDMENT TO SECTION 8 OF THE CREDIT AGREEMENT. Section
8.14 of the Credit Agreement is hereby amended by deleting the words "June 30,
1997" which appear in Section 8.14 and substituting in place thereof the words
"September 15, 1997".
SECTION 3. CONDITIONS TO EFFECTIVENESS. This Second Amendment shall
not become effective until the Agent receives the following documents:
(a) a counterpart of this Second Amendment, executed by the
Borrower, the Guarantors and the Majority Banks; and
(b) evidence satisfactory to the Agent that the Swedish Pledge
Documents have been executed and delivered by the parties thereto, all
appropriate notices have been delivered to the account debtors and all necessary
consents have been obtained, and the Agent has a first priority perfected
security interest in the Accounts Receivable of Flextronics Sweden.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby
repeats, on and as of the date hereof, each of the representations and
warranties made by it in Section 7 of the Credit Agreement, and such
representations and warranties remain true as of the date hereof (except to the
extent of changes resulting from transactions contemplated or permitted by the
Credit Agreement and the other Loan Documents and changes occurring in the
ordinary course of business that singly or in the aggregate are not materially
adverse, and to the extent that such representations and warranties relate
expressly to an earlier date), provided, that all references therein to the
Credit Agreement shall refer to such Credit Agreement as amended hereby. In
addition, the Borrower hereby represents and warrants that the execution and
delivery by the Borrower of this Second Amendment and the performance by the
Borrower of all of its agreements and obligations under the Credit Agreement as
amended hereby are within the corporate authority of each the Borrower and has
been duly authorized by all necessary corporate action on the part of the
Borrower.
SECTION 5. RATIFICATION, ETC. Except as expressly amended hereby,
the Credit Agreement and all documents, instruments and agreements related
thereto, including, but not limited to the Security Documents, are hereby
ratified and confirmed in all respects and shall continue in full force and
effect. The Credit Agreement and this Second Amendment shall be read and
construed as a single agreement. All references in the Credit Agreement or any
related agreement or instrument to the Credit Agreement shall hereafter refer to
the Credit Agreement as amended hereby.
SECTION 6. NO WAIVER. Nothing contained herein shall constitute a
waiver of, impair or otherwise affect any Obligations, any other obligation of
the Borrower or any rights of the Agent or the Banks consequent thereon.
SECTION 7. COUNTERPARTS. This Second Amendment may be executed in
one or more counterparts, each of which shall be deemed an original but which
together shall constitute one and the same instrument.
SECTION 8. GOVERNING LAW. THIS SECOND AMENDMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REFERENCE TO CONFLICT OF LAWS).
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as a
<PAGE> 3
Page 3
document under seal as of the date first above written.
FLEXTRONICS INTERNATIONAL USA, INC.
By:____________________________________
Title:
BANKBOSTON, N.A.
By:____________________________________
Title:
ABN AMRO BANK N.V.
By:____________________________________
Title:
THE BANK OF NOVA SCOTIA
By:____________________________________
Title:
BANQUE PARIBAS
By:____________________________________
Title:
SKANDINAVISKA ENSKILDA BANKEN
CORPORATION
By:____________________________________
Title:
BANQUE NATIONALE DE PARIS, SAN
FRANCISCO BRANCH
By:____________________________________
<PAGE> 4
Page 4
Title:
By:____________________________________
Title:
COMERICA BANK
By:____________________________________
Title:
DE NATIONALE INVESTERINGSBANK ASIA
LTD.
By:____________________________________
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By:____________________________________
Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY
By:____________________________________
Title:
SANWA BANK CALIFORNIA
By:____________________________________
Title:
SUMITOMO BANK OF CALIFORNIA
By:____________________________________
Title:
<PAGE> 5
Page 5
UNION BANK OF CALIFORNIA
By:____________________________________
Title:
<PAGE> 6
Page 6
RATIFICATION OF GUARANTY
Each of the undersigned guarantors hereby acknowledges and consents
to the foregoing Second Amendment as of June 30, 1997, and agrees that each of
the Guarantees dated as of March 27, 1997 from each of the undersigned
Guarantors remain in full force and effect, and each of the Guarantors confirms
and ratifies all of its obligations thereunder.
FLEXTRONICS INTERNATIONAL LTD.
By:__________________________________
Title:
FLEXTRONICS INTERNATIONAL (UK) LTD.
By:__________________________________
Title:
FLEXTRONICS MANUFACTURING (HK) LTD.
By:__________________________________
Title:
FLEXTRONICS SINGAPORE PTE. LTD.
By:__________________________________
Title:
FLEXTRONICS HOLDING (UK) LTD.
By:__________________________________
Title:
FLEXTRONICS MALAYSIA SDN BHD
<PAGE> 7
Page 7
By:__________________________________
Title:
FLEXTRONICS INTERNATIONAL
MARKETING (L) LTD.
By:__________________________________
Title:
FLEXTRONICS HOLDINGS AB
By:__________________________________
Title:
FLEXTRONICS INTERNATIONAL
SWEDEN AB
By:__________________________________
Title:
ASTRON GROUP LIMITED
By:__________________________________
Title:
<PAGE> 1
EXHIBIT 11.1
FLEXTRONICS INTERNATIONAL LTD.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
MARCH 31,
----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Shares issued and outstanding 11,404 12,684 14,299
Common Stock Equivalent Warrants and Stock Options 699 0 578
------- ------- -------
12,103 12,684 14,877
------- ------- -------
Net income/(loss) after extraordinary gain $ 6,156 (15,132) 7,463
Extraordinary gain -- -- --
Net income/(loss) after extraordinary gain $ 6,156 (15,132) $ 7,463
------- ------- -------
Earnings per share:
Net income/(loss) before extraordinary gain $ 0.51 $ (1.19) $ 0.50
Extraordinary gain -- -- --
Net income/(loss) after extraordinary gain $ 0.51 $ (1.19) $ 0.50
------- ------- -------
</TABLE>
Note:
Net income is computed using the weighted average number of Ordinary
Share equivalents outstanding during the respective periods. Ordinary Share
equivalents include Ordinary Shares issuable upon the exercise of stock options
computed using the treasury stock method.
The computations of the respective years give retroactive effect to the
acquisition of nCHIP, Inc. which was accounted for under the pooling of interest
method. Hence, the number of share equivalents and net income are restated as if
the acquisition took place on April 1, 1993.
2
<PAGE> 1
EXHIBIT 21.1
FLEXTRONICS INTERNATIONAL LTD
LIST OF SUBSIDIARIES
SUBSIDIARY COMPANIES COUNTRY OR STATE OF INCORPORATION
Flextronics Singapore Pte. Ltd. .............Singapore
Flextronics Computer (Shekou) Limited .......People's Republic of China
Flextronics Industrial (Shenzhen) Limited ...People's Republic of China
Zhuhai Dao Men Chao Yi Technology Co., Ltd. .People's Republic of China
Zhuhai Dao Men Chao Yi Electronics Co., Ltd. People's Republic of China
Flextronics Malaysia Sdn. Bhd. ..............Malaysia
Flex International Marketing (L.) Ltd. ......Malaysia
Flextronics Manufacturing (HK) Ltd. .........Hong Kong
Astron Group Limited. .......................Hong Kong
Flextronics International (USA), Inc. .......California
Flex Asia (UK) Ltd. .........................United Kingdom
Astron Technologies Ltd. ....................Mauritius
Flextronics International (UK) Ltd. .........United Kingdom
Flextronics Holdings (UK) Ltd. ..............United Kingdom
Flextronics de Mexico, S.A. de C.V. .........Mexico
Flextronics Holding AB ......................Sweden
Flextronics International Sweden AB .........Sweden
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated July 31, 1997,
with respect to the audited financial statements and schedules of Flextronics
International Ltd. as of March 31, 1996 and 1997 and for each of the three
years in the period ended March 31, 1997, into (i) the Company's Annual Report
on Form 10-K; (ii) the Registration Statement on Form S-8 (File No. 33-78529)
pertaining to the 1993 Share Option Plan, Executives' Share Option Scheme and
Executives' Incentive Share Scheme of Flextronics International Ltd.; and (iii)
the Registration Statement on Form S-8 (File No. 33-89454) pertaining to
Ordinary Shares authorized for issuance under the nCHIP, Inc. Amended and
Restated 1988 Stock Option Plan which was assumed by Flextronics International
Ltd. in connection with the acquisition of nCHIP, Inc.
/s/ Ernst & Young
- -----------------
ERNST & YOUNG
Certified Public Accountants
Singapore
July 31, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FINANCIAL
STATEMENTS FOR THE FISCAL YEAR ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS
ENTIRETY AS REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 23,645
<SECURITIES> 0
<RECEIVABLES> 63,673
<ALLOWANCES> 5,658
<INVENTORY> 106,583
<CURRENT-ASSETS> 210,328
<PP&E> 153,137
<DEPRECIATION> (42,173)
<TOTAL-ASSETS> 359,234
<CURRENT-LIABILITIES> 235,575
<BONDS> 0
95,570
0
<COMMON> 88
<OTHER-SE> (12,066)
<TOTAL-LIABILITY-AND-EQUITY> 359,234
<SALES> 490,585
<TOTAL-REVENUES> 490,585
<CGS> 440,448
<TOTAL-COSTS> 36,352
<OTHER-EXPENSES> (2,641)
<LOSS-PROVISION> 2,866
<INTEREST-EXPENSE> 3,885
<INCOME-PRETAX> 9,675
<INCOME-TAX> 2,212
<INCOME-CONTINUING> 7,463
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,463
<EPS-PRIMARY> 0.52
<EPS-DILUTED> 0.50
</TABLE>
