<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 4, 1998
REGISTRATION NO. 333-41293
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
POST EFFECTIVE AMENDMENT
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
FLEXTRONICS INTERNATIONAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
SINGAPORE 0-23354 NOT APPLICABLE
STATE OR OTHER JURISDICTION OF (COMMISSION FILE NUMBER) (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION NO.)
</TABLE>
514 CHAI CHEE LANE #04-13
BEDOK INDUSTRIAL ESTATE
SINGAPORE 469029
(65) 449-5255
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
MICHAEL E. MARKS
CHIEF EXECUTIVE OFFICER
FLEXTRONICS INTERNATIONAL LTD.
514 CHAI CHEE LANE #04-13
BEDOK INDUSTRIAL ESTATE
SINGAPORE 469029
(65) 449-5255
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
GORDON K. DAVIDSON, ESQ.
DAVID K. MICHAELS, ESQ.
CARLTON X. OSBORNE, ESQ.
FENWICK & WEST LLP
TWO PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94306
(650) 494-0600
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As promptly as practicable after this Registration Statements becomes effective.
If the only securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, please check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [X]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any state in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any state.
================================================================================
<PAGE> 2
DATED MARCH 4, 1998
$150,000,000
OFFER FOR ALL OUTSTANDING
8 3/4% SENIOR SUBORDINATED NOTES DUE 2007
IN EXCHANGE FOR
8 3/4% OF SERIES B SENIOR SUBORDINATED NOTES DUE 2007
OF
FLEXTRONICS INTERNATIONAL LTD.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, ON APRIL 1, 1998, UNLESS EXTENDED.
Flextronics International Ltd., a Singapore company (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying Letter of Transmittal (which together constitute
the "Exchange Offer"), to exchange an aggregate principal amount of up to
$150,000,000 of 8 3/4% Series B Senior Subordinated Notes due 2007 of the
Company (the "New Notes") for a like principal amount of the issued and
outstanding 8 3/4% Senior Subordinated Notes due 2007 of the Company (the "Old
Notes" and, together with the New Notes, the "Notes") with the holders thereof.
The terms of the New Notes are identical in all respects to the terms of the Old
Notes, except that the terms of the New Notes do not include certain transfer
restrictions and registration rights included in the terms of the Old Notes.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from October 15, 1997. Accordingly, if the relevant record date for
interest payment occurs after the consummation of the Exchange Offer, registered
holders of New Notes on such record date will receive interest accruing from the
most recent date to which interest has been paid or, if no interest has been
paid, from October 15, 1997. If, however, the relevant record date for interest
payment occurs prior to the completion of the Exchange Offer, registered holders
of Old Notes on such record date will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from October 15, 1997. Old Notes accepted for exchange will cease to accrue
interest from and after the date of completion of the Exchange Offer, except as
set forth in the immediately preceding sentence. Holders of Old Notes whose Old
Notes are accepted for exchange will not receive any payment in respect of
interest on such Old Notes otherwise payable on any interest payment date, the
record date for which occurs on or after consummation of the Exchange Offer.
The Old Notes were issued on October 15, 1997 (the "Old Note Offering") in a
transaction not registered under the Securities Act of 1933, as amended (the
"Securities Act"), in reliance upon the exemption provided in Section 4(2) of
the Securities Act. Accordingly, the Old Notes may not be reoffered, resold,
pledged, hypothecated or otherwise transferred in the United States unless so
registered or unless an applicable exemption from the registration requirements
of the Securities Act is available. The Old Notes are, and the New Notes will
be, general unsecured obligations of the Company, subordinated in right of
payment to all existing and future Senior Indebtedness (as defined herein),
including borrowings under the Credit Facility (as defined herein). The
Indenture (as defined herein) permits the Company to incur additional
indebtedness, including Senior Indebtedness, subject to certain limitations. As
of December 31, 1997, the Company had approximately $5.0 million of Senior Debt
(as defined herein) outstanding and, through its Subsidiaries, had additional
liabilities (including trade payables and capital lease obligations) aggregating
approximately $268.1 million, which would rank senior, or effectively senior, as
the case may be, in right of payment to the Notes.
The New Notes are being offered hereby to satisfy certain obligations of the
Company contained in the Registration Rights Agreement, dated October 9, 1997
(the "Registration Rights Agreement"), among the Company and the initial
purchasers of the Old Notes. The Company is making the Exchange Offer in
reliance upon interpretations of the staff of the Securities and Exchange
Commission (the "Commission") by which the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act) without compliance with the registration and prospectus delivery provisions
of the Securities Act, provided that the New Notes are acquired in the ordinary
course of the holder's business and the holder has no arrangement or
understanding with any person to participate in the distribution of the New
Notes. If any holder of Old Notes is an affiliate of the Company, or is engaged
in or intends to engage in or has any arrangement with any person to participate
in the distribution of the New Notes to be acquired pursuant to the Exchange
Offer, the holder (i) could not rely on the applicable interpretations of the
staff of the Commission and (ii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of the New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Notes received in exchange for Old Notes where the Old Notes
were acquired by the broker-dealer as a result of market-making activities or
other trading activities.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the expenses incident to the Exchange Offer. Tenders of Old
Notes pursuant to the Exchange Offer may be withdrawn at any time prior to the
Expiration Date (as defined herein). If the Company terminates the Exchange
Offer and does not accept for exchange any Old Notes, the Company will promptly
return the Old Notes to the holders thereof. See "The Exchange Offer." The Old
Notes are eligible for trading in the Private Offerings, Resales and Trading
through Automatic Linkages market (the "PORTAL Market") of the National
Association of Securities Dealers, Inc. Prior to this Exchange Offer, there has
been no public market for the New Notes. If a market for the New Notes develops,
the New Notes could trade at a discount from their principal amount. The Company
does not intend to list the New Notes on any securities exchange or to seek
approval for quotation on any automated quotation system. There is no assurance
that an active public market for the New Notes will develop.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE NEW NOTES
OFFERED HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is March 4, 1998.
<PAGE> 3
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus in connection with
the offering made hereby, and if given or made, such information or
representations must not be relied upon as having been authorized by the
Company, any Selling Shareholder or by any other person. Neither the delivery of
this Prospectus nor any sale made hereunder shall, under any circumstances,
create any implication that information herein is correct as of any time
subsequent to the date hereof. This Prospectus does not constitute an offer to
sell or a solicitation of an offer to buy any security other than the securities
covered by this Prospectus, nor does it constitute an offer to or solicitation
of any person in any jurisdiction in which such offer or solicitation may not
lawfully be made.
THE COMPANY HAS APPOINTED CORPORATION SERVICE COMPANY, 80 STATE STREET,
ALBANY NEW YORK 12207, AS ITS AGENT TO RECEIVE SERVICE OF PROCESS WITH RESPECT
TO ANY ACTION BROUGHT AGAINST IT IN THE UNITED STATES DISTRICT COURT FOR THE
SOUTHERN DISTRICT OF NEW YORK UNDER THE SECURITIES LAWS OF THE UNITED STATES OR
ANY STATE THEREOF, OR ANY ACTION BROUGHT AGAINST IT IN THE SUPREME COURT OF THE
STATE OF NEW YORK IN THE COUNTY OF NEW YORK UNDER THE SECURITIES LAWS OF NEW
YORK STATE ARISING OUT OF OR RELATING TO THE OFFERING, THE INDENTURE, THE NOTES
OR THE REGISTRATION RIGHTS AGREEMENT.
THIS PROSPECTUS MAY ONLY BE DISTRIBUTED OR PASSED OR OUTSIDE SINGAPORE OR
TO PERSONS WHO ARE NEITHER NATIONALS OF, NOR RESIDENTS IN, SINGAPORE. THE NOTES
MAY NOT BE OFFERED OR SOLD, DIRECTLY OR INDIRECTLY, IN SINGAPORE OR TO CITIZENS
OF SINGAPORE IN A MANNER WHICH CONSTITUTES A PUBLIC OFFERING UNDER THE LAWS AND
REGULATIONS OF SINGAPORE.
THE NOTES MAY NOT BE OFFERED, TRANSFERRED OR SOLD, AS PART OF THEIR INITIAL
DISTRIBUTION OR AT ANY TIME THEREAFTER, TO ANY PERSON (INCLUDING LEGAL ENTITIES)
ESTABLISHED, DOMICILED OR RESIDENT IN SINGAPORE.
THE COMPANY EXPECTS THAT THE NOTES SOLD PURSUANT HERETO WILL BE ISSUED IN
THE FORM OF ONE OR MORE GLOBAL NOTES (AS DEFINED HEREIN) WHICH WILL BE DEPOSITED
WITH OR ON BEHALF OF THE DEPOSITORY TRUST COMPANY (THE "DEPOSITORY") AND
REGISTERED IN ITS NAME OR IN THE NAME OF CEDE & CO., ITS NOMINEE. BENEFICIAL
INTEREST IN THE GLOBAL NOTE REPRESENTING THE NOTES WILL BE SHOWN ON, AND
TRANSFERS THEREOF WILL BE EFFECTED THROUGH, RECORDS MAINTAINED BY THE DEPOSITORY
AND ITS PARTICIPANTS. AFTER THE INITIAL ISSUANCE OF THE GLOBAL NOTES, NOTES IN
CERTIFICATED FORM WILL BE ISSUED IN EXCHANGE FOR THE GLOBAL NOTE ON THE TERMS
SET FORTH IN THE INDENTURE (AS DEFINED HEREIN). SEE "DESCRIPTION OF THE
NOTES -- FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER."
THE NOTES ARE ELIGIBLE FOR TRADING IN THE PORTAL MARKET OF THE NASD. THE
COMPANY DOES NOT INTEND TO APPLY FOR LISTING OF THE NOTES ON ANY SECURITIES
EXCHANGE OR FOR INCLUSION OF THE NOTES IN ANY AUTOMATED QUOTATION SYSTEM.
AVAILABLE INFORMATION
Flextronics International Ltd. is subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the Commission's
following regional Offices: Suite 1400, Northwest Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661; and 13th Floor, Seven World Trade
Center, New York, New York
2
<PAGE> 4
10048. Copies of such material can be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W., Judiciary
Plaza, Washington, D.C. 20549. The Company's Ordinary Shares are quoted for
trading on the Nasdaq National Market and reports, proxy statements and other
information concerning the Company also may be inspected at the offices of the
National Association of Securities Dealers, 9513 Key West Avenue, Rockville,
Maryland 20850. The Commission maintains a World Wide Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission. The address of the
site is http://www.sec.gov.
The Company has filed with the Commission a Registration Statement on Form
S-4 (the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act") with respect to the securities offered by this
Prospectus. This Prospectus does not contain all of the information set forth in
the Registration Statement, certain parts of which have been omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and the securities offered hereby,
reference is made to the Registration Statement. Statements made in this
Prospectus as to the contents of any contract or other document referred to
herein are not necessarily complete and in each instance in which a copy of such
contract is filed as an exhibit to the Registration Statement, reference is made
to such copy, and each such statement shall be deemed qualified in all respects
by such reference. Copies of the Registration Statement may be inspected,
without charge, at the offices of the Commission, or obtained at prescribed
rates from the Public Reference Section of the Commission at the address set
forth above.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
ALL STATEMENTS, OTHER THAN STATEMENTS OF HISTORICAL FACT, INCLUDED IN THIS
PROSPECTUS, INCLUDING WITHOUT LIMITATION THE STATEMENTS UNDER "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND
"BUSINESS," ARE, OR MAY BE DEEMED TO BE, FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). VARIOUS ECONOMIC AND
COMPETITIVE FACTORS COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
DISCUSSED IN SUCH FORWARD-LOOKING STATEMENTS, INCLUDING FACTORS WHICH ARE
OUTSIDE THE CONTROL OF THE COMPANY, SUCH AS SIGNIFICANT LEVERAGE; MANAGEMENT OF
EXPANSION AND CONSOLIDATION; REPLACEMENT OF MANAGEMENT INFORMATION SYSTEMS; YEAR
2000 COMPLIANCE; ACQUISITIONS; RISKS OF KARLSKRONA PURCHASE AGREEMENT; CUSTOMER
CONCENTRATION AND DEPENDENCE ON ELECTRONICS INDUSTRY; VARIABILITY OF CUSTOMER
REQUIREMENTS AND OPERATING RESULTS; RAPID TECHNOLOGICAL CHANGE; COMPETITION;
RISKS OF INCREASED TAXES; RISKS OF INTERNATIONAL OPERATIONS; CURRENCY
FLUCTUATIONS; LIMITED AVAILABILITY OF COMPONENTS; DEPENDENCE ON KEY PERSONNEL
AND SKILLED EMPLOYEES; ENVIRONMENTAL COMPLIANCE RISKS; PROTECTION OF
INTELLECTUAL PROPERTY; AND THE OTHER FACTORS NOTED IN THIS PROSPECTUS WITH
RESPECT TO THE COMPANY'S BUSINESSES ("CAUTIONARY STATEMENTS"). ALL SUBSEQUENT
WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR
PERSONS ACTING ON BEHALF OF THE COMPANY ARE EXPRESSLY QUALIFIED IN THEIR
ENTIRETY BY SUCH CAUTIONARY STATEMENTS.
THE COMPANY
Flextronics is incorporated in Singapore under the Companies Act, Chapter
50 of Singapore (the "Companies Act"). The Company's principal executive offices
are located at 514 Chai Chee Lane #-4-13, Bedok Industrial Estate, Singapore
469029, and its telephone number is (65) 449-5255. The address of the Company's
principal U.S. office is 2090 Fortune Drive, San Jose, California 95131, and its
telephone number is (408) 428-1300. "Flextronics" is a trademark of Flextronics.
This Offering Memorandum also contains trademarks of other companies.
Flextronics prepares its consolidated financial statements in U.S. dollars.
3
<PAGE> 5
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including "Risk Factors" and the consolidated financial statements
and notes thereto, appearing elsewhere in this Prospectus. In this Prospectus,
references to "U.S. dollars" and "$" are to United States currency and
references to "Singapore dollars" and "S$" are to Singapore currency.
THE COMPANY
Flextronics International Ltd. ("Flextronics" or the "Company") is a
provider of advanced contract manufacturing services to original equipment
manufacturers ("OEMs") in the communications, computer, consumer electronics and
medical device industries. Flextronics offers a full range of services including
product design, printed circuit board ("PCB") fabrication and assembly,
materials procurement, inventory management, final system assembly and testing,
packaging and distribution. The components, subassemblies and finished products
manufactured by Flextronics incorporate advanced interconnect, miniaturization
and packaging technologies, such as surface mount ("SMT"), chip-on-board
("COB"), ball grid array ("BGA") and miniaturized gold-plated PCB technology.
The Company's strategy is to use its global manufacturing capabilities and
advanced technological expertise to provide its customers with a complete
manufacturing solution, highly responsive and flexible service, accelerated time
to market and reduced production costs. The Company targets leading OEMs, in
growing vertical markets, with which it believes it can establish long-term
relationships, and serves its customers on a global basis from its strategically
located facilities in Asia, the United States, Mexico and Europe. The Company's
customers include Advanced Fibre Communications, Braun/ThermoScan, Cisco
Systems, Ericsson, Harris DTS, Lifescan (a Johnson & Johnson company),
Microsoft, Philips Electronics and 3Com/US Robotics.
On March 27, 1997, the Company acquired from Ericsson Business Networks AB
("Ericsson") two manufacturing facilities (the "Karlskrona Facilities") located
in Karlskrona, Sweden and related inventory, equipment and other assets for
approximately $82.4 million in cash. The Karlskrona Facilities include a 220,000
square foot facility and a 110,000 square foot facility, each of which is ISO
9002 certified. The Company is currently utilizing the Karlskrona Facilities to
assemble and test PCBs, network switches, cordless base stations and other
components for business communications systems sold by Ericsson pursuant to a
multi-year purchase agreement (the "Purchase Agreement"). The Company intends to
also use the Karlskrona Facilities to offer advanced contract manufacturing
services to other European OEMs in the telecommunications and other industries,
which the Company believes are beginning to outsource the manufacture of
significant product lines. See "Business -- Recent Acquisitions."
On October 30, 1997 the Company acquired 92% of the outstanding ordinary
shares of Neutronics Electronics Industries Holding AG ("Neutronics"), an
Austrian PCB assembly company with operations in Austria and Hungary, in
exchange for 2,806,000 Ordinary Shares of the Company. Neutronics' subsidiaries
have three manufacturing facilities in Hungary (including a campus in Sarvar)
and one manufacturing facility in Austria. These facilities, which total 718,000
square feet and have a total of approximately 3,500 employees, are engaged
primarily in PCB assembly, as well as related activities such as engineering and
design, and injection molded plastics.
Since 1994, the Company has substantially expanded its manufacturing
capacity, technological capabilities and service offerings, both through
acquisitions and internal growth. In fiscal 1997, in addition to the acquisition
of the Karlstrona Facilities, the Company expanded its advanced PCB design
capabilities by acquiring Fine Line Printed Circuit Design, Inc. ("Fine Line")
for 223,321 Ordinary Shares; expanded its presence in China by investing in FICO
Investment Holding Limited ("FICO"), a producer of injection molded plastics for
Asian electronics companies; opened an additional manufacturing facility in San
Jose, California; closed manufacturing operations at its Richardson, Texas
facility; and downsized manufacturing operations in Singapore. The Company has
recently substantially expanded its manufacturing operations by expanding its
integrated campus in Doumen, China, constructing a new manufacturing campus in
Guadalajara, Mexico and adding facilities in San Jose, California. In fiscal
1998, in addition to the Neutronics acquisition, the Company acquired DTM
Products, Inc., a Colorado-based producer of injection molded plastics for North
American OEMs, in exchange for 252,469 Ordinary Shares, and Energipilot AB, a
Swedish company principally engaged in providing cables and engineering services
for Northern European OEMs, in exchange for 229,990 Ordinary Shares, and the
Company signed a definitive agreement to acquire Conexao Informatica Ltda., a
Brazil-based contract manufacturer. See "Risk Factors -- Acquisitions."
4
<PAGE> 6
THE EXCHANGE OFFER
Securities Offered......... 150,000,000 principal amount of 8 3/4 Series B
Subordinated Notes due 2007. The terms of the New
Notes and the Old Notes are identical in all
respects, except certain transfer restrictions and
registration rights relating to the Old Notes will
not be applicable with respect to the New Notes.
Issuance of Old Notes;
Registration Rights...... The Old Notes were issued on October 15, 1997 to
BancAmerica, Robertson Stephens and BancBoston
Securities Inc. (collectively, the "Initial
Purchasers"), which placed the Old Notes with
"qualified institutional buyers" (as that term is
defined in Rule 144A promulgated under the
Securities Act.) In connection therewith, the
Company executed and delivered for the benefit of
the holders of Old Notes the Registration Rights
Agreement, pursuant to which the Company agreed (i)
to file a registration statement (the "Registration
Statement") no later than 45 days after October 15,
1997 with respect to the Exchange Offer and (ii) to
use its reasonable efforts to cause the
Registration Statement to be declared effective by
the Commission no later than 135 days after October
15, 1997. In certain circumstances, the Company
will be required to file a shelf registration
statement (the "Shelf Registration Statement") to
cover resales of the Old Notes by the holders
thereof. If the Company does not comply with
certain of its obligations under the Registration
Rights Agreement, it will be required to pay
Additional Interest (as defined herein) to holders
of the Old Notes. See "The Exchange
Offer -- Registration Rights; Additional Interest."
Holders of the Old Notes do not have any appraisal
rights in connection with the Exchange Offer.
The Exchange Offer......... The New Notes are being offered in exchange of a
like principal amount of Old Notes. The issuance of
the New Notes is intended to satisfy the
obligations of the Company contained in the
Registration Rights Agreement. Based upon the
position of the staff of the Commission set forth
in no-action letters issued in connection with
other transactions substantially similar to the
Exchange Offer, the Company believes the New Notes
issued pursuant to the Exchange Offer may be
offered for resale, resold and otherwise
transferred by holders thereof (other than (i) any
holder that is an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act,
(ii) an Initial Purchaser that acquired the Old
Notes directly from the Company solely in order to
resell pursuant to Rule 144A under the Securities
Act or any other available exemption under the
Securities Act or (iii) a broker-dealer that
acquired the Old Notes as a result of market-making
or other trading activities) without further
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that the New Notes are acquired in the
ordinary course of the holder's business and the
holder is not participating and has no arrangement
with any person to participate in a distribution
(within the meaning of the Securities Act) of the
New Notes. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange
Offer must acknowledge that it will deliver a
prospectus in connection with any resale of the New
Notes. Although there has been no indication of any
change in the staff's position, there is no
assurance that the staff of the Commission would
5
<PAGE> 7
make a similar determination with respect to the
resale of the New Notes. See "Risk Factors."
Procedures for Tendering... Tendering holders of Old Notes must complete and
sign the Letter of Transmittal in accordance with
the instructions contained therein and forward the
same by mail, facsimile or hand delivery, together
with any other required documents, to the Exchange
Agent, either with the Old Notes to be tendered or
in compliance with the specified procedures for
guaranteed delivery of Old Notes. Holders of the
Old Notes desiring to tender the Old Notes in
exchange for New Notes should allow sufficient time
to ensure timely delivery. Certain brokers,
dealers, commercial banks, trust companies and
other nominees may also effect tenders by
book-entry transfer. Holders of Old Notes
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee are
urged to contact such person promptly if they wish
to tender Old Notes pursuant to the Exchange Offer.
Letters of Transmittal and certificates
representing the Old Notes should not be sent to
the Company. These documents should only be sent to
the Exchange Agent. Questions regarding how to
tender and requests for information should also be
directed to the Exchange Agent. See "The Exchange
Offer -- Procedures for Tendering the Old Notes."
Tenders, Expiration Date;
Withdrawal............... The Exchange Offer will expire the earlier of 5:00
p.m., New York City time, on April 1, 1998 or (ii)
the date when all Old Notes have been tendered, or
such later date and time to which it is extended,
provided it may not be extended beyond April 1,
1998. The Company will accept for exchange any and
all Old Notes that are validly tendered in the
Exchange Offer prior to 5:00 p.m., New York City
time, on the Expiration Date. The tender of Old
Notes pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
Any Old Note not accepted for exchange for any
reason will be returned without expense to the
tendering holder thereof as promptly as practicable
after the expiration or termination of the Exchange
Offer. See "The Exchange Offer -- Terms of the
Exchange Offer; Period for Tendering Old Notes" and
"-- Withdrawal Rights."
Tax Considerations......... For Singapore and U.S. federal income tax purposes,
the exchange pursuant to the Exchange Offer will
not result in any income, gain or loss to the
holders of Notes or the Company. See "Certain Tax
Considerations."
Use of Proceeds............ There will be no proceeds to the Company from the
exchange pursuant to the Exchange Offer.
Appraisal Rights........... Holders of Old Notes will not have dissenters'
rights or appraisal rights in connection with the
Exchange Offer.
Exchange Agent............. State Street Bank and Trust Company of California,
N.A. is serving as Exchange Agent in connection
with the Exchange Offer.
CONSEQUENCES OF NOT EXCHANGING THE OLD NOTES
Holders of Old Notes who do not exchange Old Notes for New Notes pursuant
to the Exchange Offer will continue to be subject to the restrictions on
transfer of the Old Notes as set forth in the legend thereon as a consequence of
the issuance of the Old Notes pursuant to exemptions from, or in transactions
not subject to,
6
<PAGE> 8
the registration requirements of the Securities Act and applicable state
securities laws. In general, the Old Notes may not be offered or sold, unless
registered under the Securities Act, except pursuant to an exemption from, or in
a transaction not subject to, the Securities Act and applicable state securities
laws. The Company does not anticipate that it will register the Old Notes for
resale under the Securities Act. See "Risk Factors -- Consequences of Failure to
Exchange Old Notes" and "The Exchange Offer -- Consequences of Failure to
Exchange Old Notes."
SUMMARY DESCRIPTION OF THE NEW NOTES
The terms of the New Notes and the Old Notes are identical in all respects,
except that the terms of the New Notes do not include certain transfer
restrictions and registration rights relating to the Old Notes.
The New Notes will bear interest from the most recent date to which
interest has been paid on the Old Notes or, if no interest has been paid on the
Old Notes, from October 15, 1997. Accordingly, registered Holders of New Notes
on the relevant record date for the first interest payment date following the
completion of the Exchange Offer will receive interest accruing from the most
recent date to which interest has been paid or, if no interest has been paid,
from October 15, 1997. Old Notes accepted for exchange will cease to accrue
interest from and after the date of completion of the Exchange Offer. Holders of
Old Notes whose Old Notes are accepted for exchange will not receive any payment
in respect of interest on the Old Notes otherwise payable on any interest
payment date that occurs on or after completion of the Exchange Offer.
Issuer..................... Flextronics International Ltd., a Singapore
company.
Securities Offered......... $150,000,000 aggregate principal amount of 8 3/4%
Senior Subordinated Notes due 2007.
Maturity Date.............. October 15, 2007.
Interest Payment Dates..... Semiannually on April 15 and October 15, commencing
April 15, 1998.
Ranking.................... The Notes will be unsecured obligations of the
Company and will be subordinated in right of
payment to all existing and future Senior Debt (as
defined) of the Company, including the Company's
obligations under the Credit Facility (as defined)
and effectively subordinated to all indebtedness
and other obligations of the Company's Subsidiaries
(as defined). The Notes will rank pari passu with
any future senior subordinated indebtedness of the
Company and will rank senior to any other
subordinated indebtedness of the Company. As of
December 31, 1997, the Company had approximately
5.0 million of Senior Debt outstanding and, through
its Subsidiaries, had additional liabilities
(including trade payables and capital lease
obligations) aggregating approximately 268.1
million, which would rank senior, or effectively
rank senior, as the case may be, in right of
payment to the Notes. See "Capitalization,"
"Description of the Credit Facility" and
"Description of the Notes -- Subordination."
Optional Redemption........ The Notes may be redeemed, in whole or in part, at
any time on or after October 15, 2002 at the option
of the Company, at the redemption prices set forth
herein, plus, in each case, accrued and unpaid
interest to the applicable redemption date. In
addition, at any time prior to October 15, 2000,
the Company may, at its option, redeem up to $52.5
million in aggregate principal amount of the Notes
at a redemption price of 108.75% of the principal
amount thereof, plus accrued and unpaid interest
thereon to the applicable redemption date, with the
net cash proceeds of a public or private offering
of Ordinary Shares of the Company (other than the
Equity Offering (as defined below)) (an
7
<PAGE> 9
"Equity Sale"), provided that at least $97.5
million in aggregate principal amount of the Notes
remain outstanding immediately after the occurrence
of such redemption. Further, the Notes are subject
to redemption at the option of the Company at a
redemption price equal to 100% of the principal
amount thereof, plus accrued and unpaid interest to
the redemption date, in the event of a Change in
Tax Law (as defined) requiring the imposition of
withholding taxes on any amounts payable under the
Notes. See "Description of the Notes --
Redemption."
Change of Control.......... Upon a Change of Control (as defined), the Company
will be obligated to make an offer to repurchase
all of the outstanding Notes at a price equal to
101% of the principal amount thereof, plus accrued
and unpaid interest to the date of repurchase. See
"Description of the Notes -- Repurchase at the
Option of Holders Upon Change of Control."
Certain Covenants.......... The indenture under which the Notes will be issued
(the "Indenture") will contain certain covenants
that will, among other things, restrict the ability
of the Company and its Subsidiaries (i) to pay
dividends, redeem capital stock or prepay certain
subordinated indebtedness, (ii) to incur
indebtedness or issue preferred stock, (iii) to
grant liens, (iv) to merge, consolidate or transfer
substantially all of their assets, (v) to enter
into certain transactions with Affiliates (as
defined), (vi) to impose restrictions on any
Subsidiary's ability to pay dividends to the
Company, (vii) to enter into certain sale and
leaseback transactions, (viii) to make certain
asset sales and (ix) to permit Subsidiaries to
guarantee Debt. The limitations described above are
subject to certain qualifications and exceptions.
See "Description of the Notes -- Certain
Covenants."
RISK FACTORS
Holders of Old Notes should carefully consider the following risk factors,
as well as all other information set forth in this Prospectus, before tendering
their Old Notes in the Exchange Offer. The risk factors set forth below (other
than "Consequences of Failure to Exchange Old Notes") are generally applicable
to the Old Notes as well as the New Notes.
8
<PAGE> 10
SUMMARY SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company as of
and for each of the nine months ended December 31, 1996 and 1997 and as of and
for the fiscal years ended March 31, 1993, 1994, 1995, 1996 and 1997. The
selected financial data for the fiscal years ended March 31, 1995, 1996 and 1997
and as of March 31, 1996 and 1997 has been derived from the consolidated
financial statements of the Company which have been audited by Arthur Andersen
LLP, independent public accountants, whose report thereon is included elsewhere
herein. The selected financial data as of December 31, 1997 and 1996 and for the
nine months ended December 31, 1996 and 1997 has been derived from the unaudited
financial statements of the Company for such periods. The selected financial
data as of March 31, 1993, 1994 and 1995 and for the years ended March 31, 1993
and 1994 has been derived from the consolidated financial statements of the
Company which were audited by other auditors. In the opinion of management, all
adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation have been made. These historical results are
not necessarily indicative of the results to be expected in the future. The
following table is qualified by reference to and should be read in conjunction
with the consolidated financial statements, related notes thereto and other
financial data included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------------------------ -------------------
1993 1994 1995 1996(1) 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................................... $100,759 $131,345 $292,149 $572,045 $640,007 $467,787 $782,013
Cost of sales............................... 91,794 117,392 265,426 517,732 575,142 421,931 705,496
-------- -------- -------- -------- -------- -------- --------
Gross margin................................ 8,965 13,953 26,723 54,313 64,865 45,856 76,517
Selling, general and administrative......... 7,131 8,667 15,771 28,138 36,277 26,101 38,143
Goodwill and intangible amortization........ 388 419 762 1,296 2,648 2,152 2,704
Provision for plant closings................ -- 830 -- 1,254(1) 5,868(2) 2,321 --
Acquired in-process research and
development............................... 81 202 91 29,000(1) -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations............... 1,365 3,835 10,099 (5,375) 20,072 15,282 35,670
Merger-related expenses..................... -- -- (816) -- -- -- (4,000)
Other, net.................................. (2,329) (1,446) (1,814) (4,924) (6,425) (2,434) (9,705)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes........... (964) 2,389 7,469 (10,299) 13,647 12,848 21,965
Provision for income taxes.................. 264 654 1,588 3,847 2,027 2,029 2,856
Extraordinary gain.......................... -- 416 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)........................... $ (1,228) $ 2,151 $ 5,881 $(14,146) $ 11,620 $ 10,819 $ 19,109
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA(3)................................. $ 6,492 $ 16,956 $ 37,349 $ 37,503 $ 47,803 $ 30,322 58,243
EBITDA margin............................. 6.4% 7.4% 5.8% 6.5% 7.5% 6.5% 7.4%
Capital expenditures...................... $ 2,126 $ 5,248 $ 21,848 $ 23,520 $ 37,503 $ 24,557 $ 65,944
Depreciation and amortization............. $ 4,828 $ 4,621 $ 7,183 $ 13,864 $ 18,140 $ 13,398 $ 22,029
FINANCIAL RATIOS(4):
Ratio of EBITDA to interest expense............................................................... 3.10
Ratio of total debt to EBITDA..................................................................... 3.54
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------------------------ -------------------
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital............................. (1,201) 30,669 36,737 25,527 (30,245) 24,841 150,624
Total assets................................ 52,430 103,129 185,186 309,267 446,292 316,160 633,998
Long-term debt and capital lease obligations
including current portion................. 17,243 4,755 23,055 75,566 165,916 71,705 206,242
Shareholders' equity........................ (2,256) 46,703 68,433 85,571 99,345 97,665 207,407
</TABLE>
- ------------------------------
(1) In fiscal 1996, the Company wrote off $29.0 million of in-process research
and development associated with the acquisition of Astron and also recorded
charges totaling $1.3 million for costs associated with the closing of one
of the Company's Malaysian plants and its Shekou, China operations.
9
<PAGE> 11
(2) In fiscal 1997, the Company incurred plant closing expenses aggregating $5.9
million in connection with closing its manufacturing facility in Texas,
downsizing manufacturing operations in Singapore, the write-off of excess
equipment and severance obligations at the nCHIP semiconductor fabrication
operations.
(3) EBITDA represents income before interest expense, income taxes, depreciation
and amortization, and non-recurring and extraordinary items. EBITDA excludes
(i) the merger expenses recorded in fiscal 1995 associated with the
acquisition of nCHIP by the Company, (ii) losses from associated company
recorded in fiscal 1994 and 1995 and the income from associated company
recorded in fiscal 1997, (iii) charges recorded in fiscal 1994 associated
with certain plant closings, (iv) bank consulting fees recorded in fiscal
1997, (vi) a loss on investment in fiscal 1997 due to its permanent
impairment, and (vi) the expenses, charges and write-offs discussed in notes
(1) and (2) above. EBITDA is included herein because management believes
that certain investors will find it to be a useful tool for measuring the
Company's ability to service its debt; however, EBITDA does not represent
cash flow from operations, as defined by GAAP, and should not be considered
as a substitute for net earnings as an indicator of the Company's operating
performance or cash flow as a measure of liquidity.
(4) EBITDA and interest expense used in the ratio calculations are for the nine
months ended December 31, 1997.
10
<PAGE> 12
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the Notes
offered hereby. The discussion in this Prospectus contains certain
forward-looking statements, and the following risk factors should be read as
being applicable to all related forward-looking statements wherever they appear
in this Prospectus. The Company's actual results could differ materially from
those discussed in this Prospectus. Factors that could cause or contribute to
such differences include those discussed below, as well as those discussed
elsewhere herein. See "Disclosure Regarding Forward-Looking Statements."
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Issuance of the New Notes in exchange for the Old Notes pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent of
the Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Holders of the Old Notes desiring to tender the
Old Notes in exchange for New Notes, therefore, should allow sufficient time to
ensure timely delivery. The Company is under no duty to give notification of
defects or irregularities with respect to tenders of Old Notes for exchange.
Holders of Old Notes who do not exchange their Old Notes for New Notes pursuant
to the Exchange Offer will continue to be subject to the restrictions on
transfer of the Old Notes as set forth in the legend thereon. In general, the
Old Notes may not be offered or sold, unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Company does not
anticipate that it will register the Old Notes under the Securities Act. To the
extent that Old Notes are tendered and accepted in the Exchange Offer, a
holder's ability to sell untendered, or tendered but unaccepted, Old Notes could
be adversely affected. See "The Exchange Offer -- Consequences of Failure to
Exchange Old Notes."
Based on interpretations of the staff of the Commission, the Company
believes the New Notes issued pursuant to the Exchange Offer in exchange for Old
Notes may be offered for resale, resold and otherwise transferred by a holder
thereof (other than (i) an "affiliate" of the Company within the meaning of Rule
405 of the Securities Act, (ii) an Initial Purchaser who acquired the Old Notes
directly from the Company solely in order to resell pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act, or
(iii) a broker-dealer who acquired the Old Notes as a result of market-making or
other trading activities) without further compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that the New
Notes are acquired in the ordinary course of the holder's business and that the
holder is not participating, and has no arrangement or understanding with any
person to participate, in a distribution (within the meaning of the Securities
Act) of the New Notes. The Company has not, however, sought its own no-action
letter from the staff of the Commission. Although there has been no indication
of any change in the staff's position, there is no assurance that the staff of
the Commission would make a similar determination with respect to the resale of
the New Notes. Any holder that cannot rely upon these prior staff
interpretations must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, unless the sale is made pursuant to an exemption from these
requirements. See "The Exchange Offer -- Consequences of Failure to Exchange Old
Notes."
SIGNIFICANT LEVERAGE; INCURRENCE OF ADDITIONAL SENIOR DEBT
The Company has significant amounts of outstanding indebtedness and
interest cost. The Company's level of indebtedness presents risks to investors,
including the possibility that the Company may be unable to generate cash
sufficient to pay the principal of and interest on the indebtedness when due.
The Company's indebtedness at December 31, 1997, included $150.0 million
principal amount of the Old Notes, $14.5 million in bank borrowings, $27.0 in
capital lease obligations and $14.7 million of other debt instruments compared
to $72.0 million at December 31, 1996. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Liquidity and Capital
Resources" and "Description of the Credit Facility."
11
<PAGE> 13
The Company's ability to make principal and interest payments on the Notes
will be dependent on the Company's future operating performance, which is itself
dependent on a number of factors, many of which are outside of the Company's
control. These factors include prevailing economic conditions and financial,
competitive, regulatory and other factors affecting the Company's business and
operations, and may be dependent on the availability of borrowings under the
Credit Facility or other borrowings. Although the Company believes, based on
current levels of operations, its cash flow from operations, together with other
sources of liquidity, will be adequate to make required payments of principal
and interest on its debt (including the Notes), whether at or prior to maturity,
finance anticipated capital expenditures and fund working capital requirements,
there is no assurance in this regard. If the Company does not have sufficient
available resources to repay any indebtedness under the Credit Facility (or
other indebtedness the Company may incur) when it becomes due and payable, the
Company may find it necessary to refinance such indebtedness, and there can be
no assurance that refinancing will be available, or available on reasonable
terms.
Additionally, the Company's level of indebtedness could have a material
adverse effect on the Company's future operating performance, including, but not
limited to, the following: (i) a significant portion of the Company's cash flow
from operations will be dedicated to debt service payments, thereby reducing the
funds available to the Company for other purposes; (ii) the Company's leverage
may place the Company at a competitive disadvantage; (iii) the Company's
operating flexibility is limited by covenants that, among other things, limit
its ability to incur additional indebtedness, grant liens, make capital
expenditures and enter into sale and leaseback transactions; and (iv) 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 may seek growth through selective acquisitions, including
significant acquisitions. The Company could incur substantial additional
indebtedness in connection with a significant acquisition, in which event the
Company's leverage would increase.
HOLDING COMPANY STRUCTURE
The Company is a holding company with no business operations other than (i)
holding the capital stock of its Subsidiaries and (ii) advancing funds to, and
receiving funds from, its Subsidiaries. In repaying its indebtedness, including
the Notes, the Company must rely on dividends and other payments made to it by
its Subsidiaries.
The holders of the Notes will have no direct claims against the Company's
Subsidiaries. The ability of the Company's Subsidiaries to make payments to the
Company will be affected by the obligations of such Subsidiaries to their
creditors. Claims of holders of indebtedness of the Company, including the
Notes, against the cash flow and assets of the Company's Subsidiaries will be
effectively subordinated to claims of such creditors.
In addition, the rights of the Holders of the Notes to participate in the
assets of any Subsidiary of the Company upon such Subsidiary's liquidation or
recapitalization will be subject to the prior claims of such Subsidiary's
creditors. At December 31, 1997, Subsidiaries of the Company had liabilities
(including trade payables and capital lease obligations) aggregating
approximately 268.1 million. The ability of the Company's Subsidiaries to make
payments to the Company will also be subject to, among other things, applicable
state and foreign corporate laws and other laws and regulations. In order to pay
the principal amount at maturity of the Notes, the Company may be required to
adopt one or more alternatives, such as a refinancing of the Notes.
SUBORDINATION
The Notes are unsecured obligations of the Company and will be subordinated
in right of payment to all current and future Senior Debt of the Company
including indebtedness under the Credit Facility. The Notes rank pari passu with
any future senior subordinated indebtedness of the Company and rank senior to
all other subordinated indebtedness of the Company. As of December 31, 1997, the
Company had outstanding Senior Debt of approximately 5.0 million and, through
its Subsidiaries, had additional liabilities (including trade
12
<PAGE> 14
payables and capital lease obligations) aggregating approximately 268.1 million,
which would rank senior, or effectively senior, as the case may be, in right of
payment on the Notes.
In addition, under the Credit Facility, subject to compliance with certain
covenants and financial ratios, the Company and its United States Subsidiary may
borrow up to an aggregate of $105.0 million of revolving credit loans. The
Company has guaranteed the obligations of its United States Subsidiary under the
Credit Facility. Borrowings by the Company under the Credit Facility, and
guarantees by the Company of borrowings by its United States Subsidiary will
constitute Senior Debt. See "Description of the Credit Facility."
Upon any distribution to creditors of the Company in a total or partial
liquidation, winding up, reorganization or dissolution of the Company or in a
voluntary or involuntary bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property, an assignment for
the benefit of creditors or any marshalling of the Company's assets and
liabilities, the holders of Senior Debt would be entitled to receive payment in
full in cash of all obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Debt) before the Holders of the Notes will be entitled to
receive any payment with respect to the Notes, and until all obligations with
respect to Senior Debt are paid in full in cash, any distribution to which the
Holders of the Notes would be entitled shall be made to the holders of Senior
Debt (except that Holders of the Notes may receive Permitted Junior Securities
and payments made from the trust described under "Description of the
Notes -- Legal Defeasance and Covenant Defeasance").
As a result of the subordination provisions described above, in the event
of the insolvency, liquidation, reorganization or other winding up of the
Company, the lenders under the Credit Facility and other creditors who are
holders of Senior Debt, as well as creditors with secured obligations that are
not defined as Debt under the Indenture, must be paid in full before payment of
amounts due on the Notes. Accordingly, there may be insufficient assets
remaining after such payments to pay amounts due on the Notes. See "Description
of the Notes -- Certain Covenants -- Incurrence of Debt and Issuance of
Preferred Stock."
In addition, the Company may not pay any principal of, premium, if any, or
interest on, or any other amounts owing in respect of, the Notes, or purchase,
redeem or otherwise retire the Notes, or make any deposit pursuant to the
defeasance provisions for the Notes, if Designated Senior Debt (as such term is
defined in the Indenture) is not paid when due, unless such default is cured or
waived or has ceased to exist or such Designated Senior Debt has been repaid in
full. Under certain circumstances, no payments may be made for a specified
period with respect to the principal of, premium, if any, and interest on, and
any other amounts owing in respect of, the Notes if a default, other than a
payment default, exists with respect to Designated Senior Debt, including
indebtedness under the Credit Facility, unless such default is cured, waived or
has ceased to exist or such indebtedness has been repaid in full. See
"Description of the Notes -- Subordination." If any Event of Default occurs and
is continuing, the Trustee (as defined herein) or the Holders of at least 25% in
principal amount of the then outstanding Notes may declare all the Notes to be
due and payable immediately. Such a continuing Event of Default, however, also
would permit the acceleration of all outstanding obligations under the Credit
Facility and may additionally permit the acceleration of other then-outstanding
indebtedness of the Company or its Subsidiaries, some of which indebtedness may
be Senior Debt. In such event, the subordination provisions of the Indenture
would prohibit any payments to Holders of the Notes unless and until such
obligations (and any other accelerated Senior Debt) have been repaid in full.
See "Description of the Notes -- Subordination" and "-- Events of Default and
Remedies."
OBLIGATIONS IN EVENT OF A CHANGE OF CONTROL; RESTRICTIONS ON REPURCHASE OF NOTES
Upon the occurrence of a Change of Control, the Company may be required to
purchase all or a portion of the Notes then outstanding at a purchase price
equal to 101% of the principal amount thereof, plus accrued and unpaid interest,
if any, to the date of purchase. Prior to commencing such an offer to purchase,
the Company may be required to (i) repay in full all indebtedness of the Company
that would prohibit the repurchase of the Notes, including under the Credit
Facility, or (ii) obtain any consent required to make the repurchase. If the
Company is unable to repay all of such indebtedness or is unable to obtain the
necessary consents, the Company will be unable to offer to purchase the Notes
and that failure would constitute an
13
<PAGE> 15
Event of Default under the Indenture. There is no assurance that the Company
will have sufficient funds available at the time of any Change of Control to
repurchase the Notes. The events that require a repurchase upon a Change of
Control under the Indenture may also constitute events of default under the
Credit Facility or subsequently incurred indebtedness of the Company. See
"Description of the Notes -- Repurchase at the Option of Holders Upon Change in
Control."
MANAGEMENT OF EXPANSION AND CONSOLIDATION
The Company is currently experiencing a period of rapid expansion through
both internal growth and acquisitions, with net sales increasing from $81.0
million in fiscal 1992 to $640.0 million in fiscal 1997 and $782.0 million in
the first nine months of fiscal 1998. There can be no assurance that the
Company's historical growth will continue or that the Company will successfully
manage the integration of acquired operations. Expansion has caused, and is
expected to continue to cause, strain on the Company's infrastructure, including
its managerial, technical, financial and other resources. To manage further
growth, the Company must continue to enhance financial controls and hire
additional engineering and sales personnel. The Company's ability to manage any
future growth effectively will require it to attract, train, motivate and manage
new employees successfully, to integrate new employees into its overall
operations and to continue to improve its operational systems. The Company may
experience certain inefficiencies as it integrates new operations and manages
geographically dispersed operations. There can be no assurance that the Company
will be able to manage its expansion effectively, and a failure to do so could
have a material adverse effect on the Company, its results of operations,
prospects or debt service ability. In addition, the Company's results of
operations, prospects or debt service ability would be adversely affected if its
new facilities do not achieve growth sufficient to offset increased expenditures
associated with expansion.
Expansion through acquisitions and internal growth has contributed to the
Company's incurring significant accounting charges and experiencing volatility
in its operating results. There can be no assurance that the Company will not
continue to experience volatility in its operating results or incur write-offs
in connection with its expansion efforts. See "-- Acquisitions." In addition,
the Company has recently completed the construction of significant new
facilities in Guadalajara, Mexico, Doumen, China, and San Jose, California,
resulting in new fixed costs and other operating expenses, including substantial
increases in depreciation expense that will increase the Company's cost of
sales. There can be no assurance that the Company will utilize a sufficient
portion of the capacity of these new and expanded facilities to offset the
impact of these expenses on its gross margins and operating income. If revenue
levels do not increase sufficiently to offset these new expenses, the Company's
results of operations, prospects or debt service ability could be materially
adversely affected.
The Company is in the process of substantially expanding its manufacturing
capacity at many of its facilities, and plans to significantly expand its
manufacturing campuses in Shenzhen, China, Sarvar, Hungary, Guadalajara, Mexico
and San Jose, California by adding new facilities and equipment. The Company
expects substantial new capital expenditures and operating lease commitments in
connection with this expansion. The Company intends to finance the capital
expenditures with net cash from operations, existing cash balances and
borrowings under the Credit Facility. No assurance can be given as to the
availability of such net cash from operations or borrowings, or as to the
availability or terms of any operating leases, and if such funds and leases are
not available, the Company could be required to curtail the construction of the
new facilities. There can be no assurance that the Company will not encounter
unforeseen difficulties, costs or delays in developing, constructing and
equipping the new manufacturing facilities, and there can be no assurance as to
when it will complete construction. Any such difficulties or delays could have a
material adverse effect on the Company's business, financial condition and
results of operations. The development and construction of the new facilities
are subject to significant risks and uncertainties, including cost estimation
errors and overruns, construction delays, weather problems, equipment delays or
shortages, labor shortages and disputes, production start-up problems and other
factors. As many of such factors are beyond the Company's control, the Company
cannot predict the length of any such delays, which could be substantial and
could result in substantial cost overruns. Such delays would adversely affect
the Company's sales growth and the Company's ability to timely meet delivery
schedules. Furthermore, the Company's development and construction of the new
facilities will result
14
<PAGE> 16
in new fixed and operating expenses, including substantial increases in
depreciation expense and rental expense that will increase the Company's cost of
sales. If revenue levels do not increase sufficiently to offset these new
expenses, the Company's operating results could be materially adversely
affected.
REPLACEMENT OF MANAGEMENT INFORMATION SYSTEMS; YEAR 2000 COMPLIANCE
The Company is beginning the process of replacing its management
information systems. The new systems will significantly affect many aspects of
the Company's business, including its manufacturing, sales and marketing, and
accounting functions, and the Company's ability to integrate the Karlskrona
Facilities, which must be converted to the new system. In addition, the
successful implementation of these systems will be important to facilitate
future growth. The Company currently anticipates that the complete installation
of its new management information systems will take at least eighteen months,
and implementation of the new systems could cause significant disruption in
operations. If the Company is not successful in implementing its new systems or
if the Company experiences difficulties in such implementation, the Company
could experience problems with the delivery of its products or an adverse impact
on its ability to access timely and accurate financial and operating
information.
The Company is in the process of identifying operating issues related to
the ability of its information systems to process dates beginning with the year
2000 ("Year 2000 compliance"). The new management information systems are
designed to be Year 2000 compliant. However, there can be no assurance that the
management information systems will be Year 2000 compliant or that such systems
will be implemented by Year 2000, and any failure to be Year 2000 compliant or
to effectively implement the new management information systems by Year 2000
could have a material adverse effect on the Company's business and results of
operations. There can be no assurance that the Company's customers and suppliers
have, or will have, management information systems that are Year 2000 compliant.
However, the Company does not anticipate that any Year 2000 compliance problems
facing its customers or suppliers would have a material adverse effect on the
Company's business and results of operations.
ACQUISITIONS
Acquisitions have represented a significant portion of the Company's growth
strategy, and the Company intends to continue to pursue attractive acquisition
opportunities. Acquisitions involve a number of risks in addition to those
described under "-- Management of Expansion and Consolidation" that could
adversely affect the Company, including the diversion of management's attention,
the integration and assimilation of the operations and personnel of the acquired
companies, the amortization of acquired intangible assets and the potential loss
of key employees of the acquired companies. The Company may not have had any
experience with technologies, processes and markets involved with the acquired
business and accordingly may lack the management and marketing experience that
will be necessary to successfully operate and integrate the business. The
successful operation of an acquired business will require communication and
cooperation in product development and marketing among senior executives and key
technical personnel. Given the inherent difficulties involved in completing a
major business combination, there can be no assurance that such cooperation will
occur or that integration of the respective businesses will be successful and
will not result in disruption in one or more sectors of the Company's business.
In addition, there can be no assurance that the Company will retain key
technical, management, sales and other personnel, that the market will favorably
view the Company's entry into a new industry or market or that the Company will
realize any of the other anticipated benefits of the acquisition. Furthermore,
additional acquisitions would require investment of financial resources, and may
require debt or equity financing. No assurance can be given that the Company
will consummate any acquisitions in the future, that any past or future
acquisition by the Company will not materially adversely affect the Company, its
results of operations, prospects or debt service ability, or that any such
acquisition will enhance the Company's business.
The March 27, 1997 acquisition of the Karlskrona Facilities and the
execution of a multi-year purchase agreement (the "Purchase Agreement") between
the Company and Ericsson (together the "Karlskrona Acquisition") and the October
30, 1997 acquisition of Neutronics each represent a significant expansion of the
Company's operations and entail a number of risks. The acquired operations are
now being integrated into the
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Company's ongoing manufacturing operations. This requires optimizing production
lines, implementing new management information systems, implementing the
Company's operating systems, and assimilating and managing existing personnel.
The difficulties of this integration may be further complicated by the
geographical distance of the Karlskrona Facilities and Neutronics' operations
from the Company's current operations in Asia and North America. In addition,
these acquisitions have increased and will continue to increase the Company's
expenses and working capital requirements, and place burdens on the Company's
management resources. In the event the Company is unsuccessful in integrating
these operations, the Company would be materially adversely affected. In
addition, prior to the acquisitions of the Karlskrona Facilities and Neutronics,
the Company had no experience operating in Sweden or in Central Europe, and
there can be no assurance that the Company will achieve acceptable levels of
profitability at the acquired operations, or that the acquisitions will not
adversely affect its gross margins.
The 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.
The Company intends to use the Karlskrona Facilities to manufacture
products for OEMs other than Ericsson. The Company has no commitments by any
third party to purchase manufacturing services to be provided at the Karlskrona
Facilities, and no assurance can be given that the Company will be successful in
marketing and providing manufacturing services to third parties from the
Karlskrona Facilities. Further, no assurances can be given as to the Company's
ability to expand manufacturing capacity at the Karlskrona Facilities.
Since the Company's acquisition of Astron, the net sales generated by
Astron's then-existing products and services, and by its products and services
then under development, have grown at rates significantly lower than those
anticipated by the Company at the time of the acquisition and significantly
lower than those assumed in the independent valuation used by the Company in
allocating the purchase price of Astron to the assets acquired. The Company has
not yet completed development of other technologies that were material to its
valuation of Astron and which it initially anticipated completing in fiscal 1996
and 1997. The completion of such development is subject to a number of
uncertainties, including potential difficulties in optimizing manufacturing
processes and the potential development of alternative technologies by
competitors that could render Astron's technologies uncompetitive or obsolete.
Accordingly, no assurances can be given as to whether or when the Company will
be able to complete the development of such technologies, as to the cost of such
development, or as to potential sales of products based on such technologies.
The capabilities provided by the technologies under development may not
otherwise be available to the Company. Accordingly, the failure by the Company
to successfully develop such technologies would limit the Company's ability to
compete effectively for business requiring certain advanced capabilities, and
would prevent it from achieving the anticipated benefits of the Astron
acquisition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Overview."
In the second quarter of fiscal 1998, the Company reduced its estimate of
the useful lives of the goodwill and intangible assets (consisting of goodwill,
customer lists and trademarks and tradenames) arising from the Astron
acquisition from approximately twenty years to ten years. This reduction will
increase the Company's amortization assets per quarter by approximately
$279,000.
RISKS OF KARLSKRONA PURCHASE AGREEMENT
As a result of the Karlskrona Acquisition, sales to Ericsson represent, and
the Company expects will continue to represent, a large portion of its net
sales. The Company currently anticipates that sales to Ericsson will represent
from 25% to 40% of its net sales in fiscal 1998. Prior to the Karlskrona
Acquisition, Ericsson was not a substantial customer of the Company. There can
be no assurance that the Company can reduce costs and prices to Ericsson over
time as contemplated by the 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
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Company may be unable to meet these requirements on a timely basis. The
Company's inability to meet Ericsson's volume, quality, timeliness and cost
requirements, and to quickly resolve any other issues with Ericsson, could have
a material adverse effect on the Company, its results of operations, prospects
or debt service ability. There can also be no assurance that Ericsson will
purchase a sufficient quantity of products from the Company to meet the
Company's expectations or that the Company will utilize a sufficient portion of
the capacity of the Karlskrona Facilities to achieve profitable operations.
The Company intends to use the Karlskrona Facilities to manufacture
products for OEMs other than Ericsson. Ericsson has certain rights to be
consulted on the management of the Karlskrona Facilities and to approve the use
of the Karlskrona Facilities for Ericsson's competitors, or for other customers
where such use might adversely affect Ericsson's access to production capacity
at the facilities.
The 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 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. See "Business -- Karlskrona Acquisition."
CUSTOMER CONCENTRATION; DEPENDENCE ON ELECTRONICS INDUSTRY
A small number of customers are currently responsible for a significant
portion of the Company's net sales. The Company's largest customer in the three
and nine months ended December 31, 1997 was Ericsson, with net sales to Ericsson
accounting for approximately 30% and 28% of its total net sales, respectively.
See "-- Risks of Karlskrona Purchase Agreement." Net sales to Philips
Electronics was approximately 11% for the nine months ended December 31, 1997.
Net sales to the Company's top five customers during the nine months ended
December 31, 1997 accounted for approximately 59% of consolidated sales compared
to 49% during the nine months ended December 31, 1997. In fiscal 1997, the
Company's five largest customers accounted for approximately 46% of net sales.
Approximately 19% and 10% of the Company's net sales for fiscal 1997 were
derived from sales to Philips Electronics and Lifescan, respectively, and
approximately 28% and 11% of the Company's net sales for the first nine months
of fiscal 1998 were derived from sales to Ericsson and Philips Electronics,
respectively. The Company anticipates that a small number of customers will
continue to account for a large portion of its net sales as it focuses on
strengthening and broadening relationships with leading OEMs. See
"Business -- Customers" and "-- Karlskrona Acquisition."
The composition of the group comprising the Company's largest customers has
varied from year to year, and there can be no assurance that the Company's
principal customers will continue to purchase products and services from the
Company at current levels, if at all. For example, the Company expects that its
sales to Global Village Communications in fiscal 1998 will be significantly
lower than in recent periods. Significant reductions in sales to any of these
customers, or the loss of one or more major customers, would have a material
adverse effect on the Company. The Company generally does not obtain firm
long-term volume purchase commitments from its customers, and over the past few
years has experienced reduced lead-times in customer orders. In addition,
customer contracts can be canceled and volume levels can be changed or delayed
and such cancellations and delays could affect the ability of the Company to
forecast purchase commitments
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accurately. 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. The markets in which the Company's customers compete are
characterized by rapidly changing technology, evolving industry standards and
continuous improvements in products and services. These conditions frequently
result in short product life cycles. The Company's success will depend to a
significant extent on the success achieved by its customers in developing and
marketing their products, some of which are new and untested. If technologies or
standards supported by customers' products become obsolete or fail to gain
widespread commercial acceptance, the Company's business may be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations."
Credit terms are extended to customers after performing credit evaluations,
which continue throughout a customer's contract period. Credit losses have
occurred in the past, and no assurances can be given that credit losses, which
could be material, will not occur in the future. The Company's concentration of
customers increases the risk that any credit loss would have a material adverse
effect on the Company, its results of operations, prospects or debt service
ability. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
VARIABILITY OF CUSTOMER REQUIREMENTS AND OPERATING RESULTS
Contract manufacturers must provide increasingly rapid product turnaround
and respond to ever-shorter lead times. The Company generally does not obtain
long-term purchase orders but instead works with its 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, based on estimates of future customer
requirements that are subject to significant change. A variety of conditions,
both specific to the individual customer and generally affecting the industry,
may cause customers to cancel, reduce or delay orders. Cancellations, reductions
or delays by a significant customer or by a group of customers would adversely
affect the Company, its results of operations, prospects or debt service
ability. On occasion, customers may require rapid increases in production, which
can stress the Company's resources and reduce margins. Although the Company has
increased its manufacturing capacity, there can be no assurance that the Company
will have sufficient capacity at any given time to meet its customers' demands
if such demands exceed anticipated levels.
In addition to the variability resulting from the short-term nature of its
customers' commitments, other factors have contributed, and may contribute in
the future, to significant periodic and quarterly fluctuations in the Company's
results of operations. These factors include, among other things: timing of
orders; volume of orders relative to the Company's capacity; customers'
announcements, introductions and market acceptance of new products or new
generations of products; evolution in the life cycles of customers' products;
timing of expenditures in anticipation of future orders; effectiveness in
managing manufacturing processes; changes in cost and availability of labor and
components; product mix; and changes or anticipated changes in economic
conditions. In addition, the Company's net sales are adversely affected by the
observance of local holidays during the fourth fiscal quarter in Malaysia and
China, reduced production levels in Sweden in July, and the reduction in orders
by certain customers in the fourth fiscal quarter reflecting a seasonal slowdown
following the Christmas holiday.
Expansion through acquisition and internal growth has contributed to the
Company's incurring significant accounting charges and to volatility in its
operating results. In the fourth quarter of fiscal 1996, the Company reported a
substantial loss as a result of the write off of in-process research and
development charges related to the Astron acquisition and the closing of
facilities in Malaysia and China. In fiscal 1997, the Company reported charges
associated with closing of its manufacturing facility in Texas, downsizing
manufacturing operations in Singapore and writing-off of obsolete equipment and
incurring severance obligations at the
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nCHIP semiconductor fabrication facility. In the third quarter of fiscal 1998,
the Company reported a merger-related expenses of approximately $4.0 million as
a result of its acquisitions of Neutronics, DTM and Energipilot and Neutronics'
cancellation of its planned initial public offering. There can be no assurance
that the Company will not continue to experience volatility in its operating
results or incur write-offs in connection with expansion, acquisitions and
consolidation.
The market segments served by the Company are also subject to economic
cycles and have in the past experienced, and are likely in the future to
experience, recessionary periods. A recessionary period affecting the industry
segments served by the Company could have a material adverse effect on the
Company, its results of operations, prospects or debt service ability. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
RAPID TECHNOLOGICAL CHANGE
The markets in which the Company's customers compete are characterized by
rapidly changing technology, evolving industry standards and continuous
improvements in products and services. These conditions frequently result in
short product life cycles. The Company's success will depend to a significant
extent on the success achieved by its customers in developing and marketing
their products, some of which are new and untested. If technologies or standards
supported by customers' products become obsolete or fail to gain widespread
commercial acceptance, the Company's business, results of operations, prospects
or debt service ability may be materially adversely affected. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations."
The Company has made substantial investments in developing advanced
interconnect technological capabilities. See "Business -- Services." These
capabilities, primarily MCMs, miniature gold-finished PCBs and epoxy molding
conductive compounds, currently account for a relatively small portion of the
overall market for electronic interconnect products. The ability of the Company
to achieve desired operating results will depend upon the extent to which
customers design, manufacture and adopt systems based on these advanced
technologies. There can be no assurance that the Company will be able to develop
and exploit these technologies successfully. In addition, there can be no
assurance that the Company will be able to exploit new technologies as they are
developed or to adapt its manufacturing processes, technologies and facilities
to address emerging customer requirements.
COMPETITION
The electronics contract manufacturing industry is extremely competitive
and includes hundreds of companies, several of whom have achieved substantial
market share. The Company competes against numerous domestic and foreign
contract manufacturers, and current and prospective customers also evaluate the
Company's capabilities against the merits of internal production. In addition,
in recent years the electronics contract manufacturing industry has attracted a
significant number of new entrants, including large OEMs with excess
manufacturing capacity, and many existing participants, including the Company,
have substantially expanded their manufacturing capacity by expanding their
facilities and adding new facilities. In the event of a decrease in overall
demand for contract manufacturing services, this increased capacity could result
in substantial pricing pressures, which could adversely affect the Company's
operating results. Certain of the Company's competitors, including Solectron
Corporation and SCI Systems, have substantially greater manufacturing,
financial, research and development and marketing resources than the Company.
The Company believes that the principal competitive factors in the segments of
the contract manufacturing industry in which it operates are cost, technological
capabilities, responsiveness and flexibility, delivery cycles, location of
facilities, product quality and range of services available. Failure to satisfy
any of the foregoing requirements could materially adversely affect the
Company's competitive position, its results of operations, prospects or debt
service ability. See "Business -- Competition."
RISK OF INCREASED TAXES
The Company has structured its operations in a manner designed to maximize
income in countries where tax incentives have been extended to encourage foreign
investment or where income tax rates are low. If these
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tax incentives are not renewed upon expiration, if the tax rates applicable to
the Company are rescinded or changed, or if tax authorities successfully
challenge the manner in which profits are recognized among the Company's
subsidiaries, the Company's taxes would increase and its results of operations,
cash flow and debt service ability would be adversely affected. Substantially
all of the products manufactured by the Company's Asian subsidiaries are sold to
U.S.-based customers. While the Company believes that profits from its Asian
operations are not sufficiently connected to the U.S. to give rise to U.S.
federal or state income taxation, there can be no assurance that U.S. tax
authorities will not challenge the Company's position or, if such challenge is
made, that the Company would prevail in any such dispute. If the Company's Asian
profits became subject to U.S. income taxes, the Company's worldwide effective
tax rate would increase and its results of operations, cash flow and debt
service ability would be adversely affected. The expansion by the Company of its
operations in North America and Northern Europe may increase its worldwide
effective tax rate. See "Management's Discussion and Analysis of Financial
Condition and Result of Operations -- Provision for Income Taxes."
RISKS OF INTERNATIONAL OPERATIONS
The Company has substantial manufacturing operations located in Austria,
China, Hungary, Malaysia, Sweden and the United States. In addition, the Company
has recently constructed a manufacturing campus in Mexico, where the Company has
never manufactured products. The Company's net sales derived from operations
outside of the United States was $476.0 million in fiscal 1997, $161.8 million
of which was derived from operations in Hong Kong, Mauritius and China, and was
$610.0 million in the nine months ended December 31, 1997, $156.0 million of
which was derived from operations in Hong Kong and China. The geographical
distances between Asia, the United States, Mexico 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, lack of
developed infrastructure, longer payment cycles, greater difficulty in
collecting accounts receivable, the burdens and costs of compliance with a
variety of foreign laws and, in certain parts of the world, political
instability. Changes in policies by the U.S. or foreign governments resulting
in, among other things, increased duties, higher taxation, currency conversion
limitations, restrictions on the transfer of funds, limitations on imports or
exports, or the expropriation of private enterprises could also have a material
adverse effect on the Company, its results of operations, prospects or debt
service ability. The Company could also be adversely affected if the current
policies encouraging foreign investment or foreign trade by its host countries
were to be reversed. In addition, the attractiveness of the Company's services
to its U.S. customers is affected by U.S. trade policies, such as "most favored
nation" status and trade preferences for certain Asian nations. For example,
trade preferences extended by the United States to Malaysia in recent years were
not renewed in 1997.
In particular, the Company's operations and assets are subject to
significant political, economic, legal and other uncertainties in China, Hungary
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. 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.
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.
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The Company could also be adversely affected by the imposition of austerity
measures intended to reduce inflation, the inadequate development or maintenance
of infrastructure or the unavailability of adequate power and water supplies,
transportation, raw materials and parts, or a deterioration of the general
political, economic or social environment in China.
In addition, China currently enjoys Most Favored Nation ("MFN") status
granted by the United States, pursuant to which the United States imposes the
lowest applicable tariffs on Chinese exports to the United States. The United
States annually reconsiders the renewal of MFN trading status for China. No
assurance can be given that China's MFN status will be renewed in the future
years. China's loss of MFN status could adversely affect the Company by
increasing the cost to the U.S. customers of products manufactured by the
Company in China.
The Company maintains certain administrative, procurement and manufacturing
operations in Hong Kong, which may be influenced by the changing political
situation in Hong Kong and by the general state of the Hong Kong economy. On
July 1, 1997, sovereignty over Hong Kong was transferred from the United Kingdom
to China, and Hong Kong became a Special Administrative Region ("SAR"). Based on
current political conditions and the Company's understanding of the Basic Law of
the Hong Kong SAR of China, the Company does not believe that the transfer of
sovereignty over Hong Kong will have a material adverse effect on the Company,
its results of operations, prospects or debt service ability. There can be no
assurance, however, that changes in political, legal or other conditions will
not result in any such adverse effect.
Risks Relating to Mexico. The Mexican government exercises significant
influence over many aspects of the Mexican economy. Accordingly, the actions of
the Mexican government concerning the economy could have a significant effect on
private sector entities in general and the Company in particular. In addition,
during the 1980s, Mexico experienced periods of slow or negative growth, high
inflation, significant devaluations of the peso and limited availability of
foreign exchange. As a result of the Company's recent expansion in Mexico,
economic conditions in Mexico will affect the Company.
Risks Relating to Hungary. A majority of Neutronics' manufacturing
operations are located in Hungary. Hungary has undergone significant political
and economic change in recent years. Political, economic, social and other
developments in Hungary may in the future have a material adverse effect on the
Company's business. In particular, changes in laws or regulations (or in the
interpretation of existing laws or regulations), whether caused by change in the
Hungarian government or otherwise, could materially adversely affect the
Company's operations and business. Annual inflation and interest rates in
Hungary have been much higher than those in Western Europe. Exchange rate
policies have not always allowed for the free conversion of currencies at the
market rate. Fluctuations of inflation and exchange rates could have an adverse
effect on the Neutronics operations business and the market value of the Shares.
Corporate contract, property, insolvency, competition and securities and
other laws and regulations in Hungary have been, and continue to be,
substantially revised during its transition to a market economy. Therefore, the
interpretation and procedural safeguards of the new legal and regulatory system
are in the process of being developed and defined and existing laws and
regulations may be applied inconsistently. Also, in some circumstances, it may
not be possible to obtain the legal remedies provided for under those laws and
regulations in a reasonably timely manner, if at all.
CURRENCY FLUCTUATIONS
While Flextronics transacts business predominantly in U.S. dollars and most
of its revenues are collected in U.S. dollars, a portion of Flextronics' costs
such as payroll, rent and indirect operation costs, are denominated in other
currencies such as Singapore dollars, Swedish kronor, Hong Kong dollars,
Malaysian ringgit, British pounds sterling, Austrian schillings, Hungarian
forints and Chinese renminbi. Historically, fluctuations in foreign currency
exchange rates have not resulted in significant exchange losses to the Company.
As a result of the Karlskrona Acquisition, a significant portion of the
Company's business has been, and is expected to continue to be, conducted in
Swedish kronor. As a result of the acquisition of Neutronics, a portion of the
Company's business has been, and is expected to continue to be, conducted in
Hungarian forints. In recent years, the Hungarian forint has continued to
depreciate, principally by way of devaluation,
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against the major currencies of Europe. 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 not actively engaged in substantial exchange rate hedging
activities. However, in August 1997 the Company entered into forward exchange
contracts with respect to the kronor to reduce foreign exchange risks arising
from a kronor-denominated intercompany loan. These contracts were settled in
September 1997 and did not have a material effect on the Company's results of
operations or cash flow. The Company's Austrian and Hungarian subsidiaries have
limited involvement in the normal course of business with derivative financial
instruments with off-balance sheet risks as a means of hedging its fixed
Japanese yen and U.S. dollar currency exposure in relation to trade accounts
payable and fixed purchase obligations. The Company had $6.8 million and $6.5
million of aggregate foreign currency forward exchange contracts outstanding at
the end of fiscal 1997 and 1996, respectively. Because the Company only hedges
fixed obligations, the Company does not expect that these hedging activities
will have a material effect on its results of operations or cash flows. However,
there can be no assurance that the Company will engage in any hedging activities
in the future or that any of its hedging activities will be successful.
Over the last five years, the Chinese renminbi has experienced significant
devaluation against most major currencies. The establishment of the current
exchange rate system as of January 1, 1994 produced a significant devaluation of
the renminbi from $1.00 to Rmb 5.7 to approximately $1.00 to Rmb 8.7. The rates
at which exchanges of renminbi into U.S. dollars may take place in the future
may vary, and any material increase in the value of the renminbi relative to the
U.S. dollar would increase the Company's costs and expenses and therefore would
have a material adverse effect on the Company.
LIMITED AVAILABILITY OF COMPONENTS
A substantial majority of the Company's net sales are derived from turnkey
manufacturing in which the Company is responsible for procuring materials, which
typically results in the Company bearing the risk of component price increases.
At various times there have been shortages of certain electronics components,
including DRAMs, memory modules, logic devices, ASICs, laminates, specialized
capacitors and integrated circuits in bare-die form. Component shortages could
result in manufacturing and shipping delays or higher prices which could have a
material adverse effect on the Company, its results of operations, prospects or
debt service ability.
DEPENDENCE ON KEY PERSONNEL AND SKILLED EMPLOYEES
The Company's success depends to a large extent upon the continued services
of key executives and skilled personnel. Generally, the Company's employees are
not bound by employment or noncompetition agreements. The Company has entered
into service agreements with certain officers, including Ronny Nilsson and Tsui
Sung Lam, some of which contain non-competition provisions and provides its
officers and key employees with stock options that are structured to incentivize
such employees to remain with the Company. However, there can be no assurance as
to the ability of the Company to retain its officers and key employees. The loss
of such personnel could have a material adverse effect on the Company, its
results of operations, prospects or debt service ability. The Company's business
also depends upon its ability to continue to recruit, train and retain skilled
and semi-skilled employees, particularly administrative, engineering and sales
personnel. There is intense competition for skilled and semi-skilled employees,
particularly in the San Jose, California market, and the Company's failure to
recruit, train and retain such employees could adversely affect the Company, its
results of operations, prospects or debt service ability.
ENVIRONMENTAL COMPLIANCE RISKS
The Company is subject to a variety of environmental regulations relating
to the use, storage, discharge and disposal of hazardous chemicals used during
its manufacturing process. Substrates for its MCMs are manufactured on a
semiconductor-type fabrication line in California owned by the Company. The
Company is
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also expanding its printed circuit board fabrication operations in China. Proper
handling, storage and disposal of the metals and chemicals used in these
manufacturing processes are important considerations in avoiding environmental
contamination. Although the Company believes that its facilities are currently
in material compliance with applicable environmental laws, and it monitors its
operations to avoid violations arising from human error or equipment failures,
there can be no assurances that violations will not occur. In the event of a
violation of environmental laws, the Company could be held liable for damages
and for the costs of remedial actions and could also be subject to revocation of
its effluent discharge permits. Any such revocations could require the Company
to cease or limit production at one or more of its facilities, thereby having a
material adverse effect on the Company's operations. Environmental laws could
also become more stringent over time, imposing greater compliance costs and
increasing risks and penalties associated with any violation, which could have a
material adverse effect on the Company, its results of operations, prospects or
debt service ability.
PROTECTION OF INTELLECTUAL PROPERTY
The Company relies on a combination of patent, trade secret and trademark
laws, confidentiality procedures and contractual provisions to protect its
intellectual property. The Company seeks to protect certain of its technology
under trade secret laws, which afford only limited protection. There can be no
assurance that any of the Company's pending patent applications will be issued
or that intellectual property laws will protect the Company's intellectual
property rights. In addition, there can be no assurance that any patent issued
to the Company will not be challenged, invalidated or circumvented or that the
rights granted thereunder will provide competitive advantages to the Company.
Despite the Company's efforts to protect its proprietary rights, unauthorized
parties may attempt to obtain and use information that the Company regards as
proprietary. Furthermore, there can be no assurance that others will not
independently develop similar technology or design around any patents issued to
the Company. Moreover, effective protection of intellectual property rights may
be unavailable or limited in certain foreign countries in which the Company
operates. In particular, the Company may be afforded only limited protection of
its intellectual property rights in China.
The Company may in the future be notified that it is infringing certain
patent or other intellectual property rights of others, although there are no
such pending lawsuits against the Company or unresolved notices that it is
infringing intellectual property rights of others. No assurance can be given
that in the event of such infringement, licenses could be obtained on
commercially reasonable terms, if at all, or that litigation will not occur. The
failure to obtain necessary licenses or other rights or the occurrence of
litigation arising out of such claims could materially adversely affect the
Company, its results of operations, prospects or debt service ability.
LACK OF PUBLIC MARKET FOR THE NOTES; VOLATILITY
The Old Notes are eligible for trading in the Private Offerings, Resales
and Trading through Automated Linkages ("PORTAL") Market. The New Notes will be
new securities, and there is no existing trading market for the New Notes.
Accordingly, there is no assurance regarding the future development of a trading
market for the New Notes or the ability of the holders, or the price at which
such holders may be able, to sell their New Notes. If such a market were to
develop, the New Notes could trade at prices that may be higher or lower than
the exchange tender price of the Old Notes. Prevailing market prices from time
to time will depend on many factors, including then existing interest rates, the
Company's operating results and cash flow and the market for similar securities.
Consequently, even if a trading market for the New Notes does develop,
there is no assurance as to the liquidity of that market. The Company does not
intend to apply for listing or quotation of the New Notes on any securities
exchange or in the over-the-counter market.
In addition, the liquidity of, and trading markets for, the New Notes may
be adversely affected by declines in the market for high-yield securities
generally. Such a decline may adversely affect liquidity and trading markets
independent of the financial performance of, and prospects for, the Company.
23
<PAGE> 25
ENFORCEMENT OF CIVIL LIABILITIES
The Company has appointed Corporation Service Company, 80 State Street,
Albany, New York 12207, as its agent to receive service of process with respect
to any action brought against it in the United States District Court for the
Southern District of New York under the securities laws of the United States or
any state thereof, or any action brought against it in the Supreme Court of the
State of New York in the County of New York under the securities laws of New
York State arising out of or relating to the Offering, the Indenture, the Notes
or the Registration Rights Agreement (as defined).
The Company is incorporated in Singapore under the Companies Act. Certain
of its directors and executive officers (and certain experts named in this
Prospectus) reside in Singapore. All or a substantial portion of the assets of
such persons, and a substantial portion of the assets of the Company (other than
its United States Subsidiary), are located outside the United States. As a
result, it may not be possible for purchasers of the Notes to effect service of
process within the United States upon such persons or to enforce against them or
the Company, in the United States courts, judgments obtained in such courts
predicated upon the civil liability provisions of the federal securities laws of
the United States. The Company has been advised by its Singapore legal advisors,
Allen & Gledhill, that there is doubt as to the enforceability in Singapore,
either in original actions or in actions for the enforcement of judgments of
United States courts, of civil liabilities predicated upon the federal
securities laws of the United States.
USE OF PROCEEDS
The Company will not receive any proceeds from the issuance of the New
Notes offered pursuant to the Exchange Offer. In consideration for issuing the
New Notes as contemplated in this Prospectus, the Company will receive in
exchange Old Notes in like principal amount, the terms of which are identical in
all respects to the New Notes except for certain transfer restrictions and
registration rights. The Old Notes surrendered in exchange for New Notes will be
retired and canceled and cannot be reissued. Accordingly, issuance of the New
Notes will not result in any increase in the indebtedness of the Company.
The net proceeds to the Company from the sale of the Old Notes were
approximately $145.7 million, after deduction of discounts, commissions and
offering expenses. The Company used the net proceeds in part to repay the
amounts outstanding under the Credit Facility and the remainder will be used to
fund expansion and for working capital and other general corporate purposes.
24
<PAGE> 26
CAPITALIZATION
The following table sets forth the Company's unaudited cash and cash
equivalents and consolidated capitalization as of December 31, 1997.
<TABLE>
<CAPTION>
DECEMBER 31, 1997
(UNAUDITED)
---------------------
ACTUAL
---------------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Cash and cash equivalents.......................................... $ 73,333
========
Long-term debt (including current portion)
Credit Facility
Revolving credit loans(1)..................................... $ --
Term loan..................................................... --
Notes............................................................ 150,000
Capital leases................................................... 26,966
Other debt....................................................... 29,277
--------
Total debt............................................... 206,243
--------
Shareholders' equity:
Ordinary Shares, S $0.01 par value; 100,000,000 shares
authorized, 13,805,351 shares issued and outstanding,
15,991,855 shares issued and outstanding as adjusted.......... 125
Additional paid-in capital....................................... 204,263
Accumulated deficit.............................................. 3,019
--------
Total shareholders' equity............................... 207,407
========
Total capitalization..................................... $ 413,650
========
</TABLE>
- ---------------
(1) The Credit Facility currently provides for revolving credit borrowings of up
to $105.0 million, subject to certain borrowing conditions. See "Description
of the Credit Facility."
25
<PAGE> 27
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company as of
and for each of the nine months ended December 31, 1996 and 1997 and as of and
for the fiscal years ended March 31, 1993, 1994, 1995, 1996 and 1997. The
selected financial data for the fiscal years ended March 31, 1995, 1996 and 1997
and as of March 31, 1996 and 1997 has been derived from the consolidated
financial statements of the Company which have been audited by Arthur Andersen
LLP, independent public accountants, whose report thereon is included elsewhere
herein. The selected financial data as of December 31, 1997 and 1996 and for the
nine months ended December 31, 1996 and 1997 has been derived from the unaudited
financial statements of the Company for such periods. The selected financial
data as of March 31, 1993, 1994 and 1995 and for the years ended March 31, 1993
and 1994 has been derived from the consolidated financial statements of the
Company which were audited by other auditors. In the opinion of management, all
adjustments, consisting of only normal recurring adjustments, considered
necessary for a fair presentation have been made. These historical results are
not necessarily indicative of the results to be expected in the future. The
following table is qualified by reference to and should be read in conjunction
with the consolidated financial statements, related notes thereto and other
financial data included elsewhere herein.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------------------------ -------------------
1993 1994 1995 1996(1) 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales...................................... $100,759 $131,345 $292,149 $572,045 $640,007 $467,787 $782,013
Cost of sales.................................. 91,794 117,392 265,426 517,732 575,142 421,931 705,496
-------- -------- -------- -------- -------- -------- --------
Gross margin................................... 8,965 13,953 26,723 54,313 64,865 45,856 76,517
Selling, general and administrative............ 7,131 8,667 15,771 28,138 36,277 26,101 38,143
Goodwill and intangible amortization........... 388 419 762 1,296 2,648 2,152 2,704
Provision for plant closings................... -- 830 -- 1,254(1) 5,868(2) 2,321 --
Acquired in-process research and development... 81 202 91 29,000(1) -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations.................. 1,365 3,835 10,099 (5,375) 20,072 15,282 35,670
Merger-related expenses........................ -- -- (816) -- -- -- (4,000)
Other, net..................................... (2,329) (1,446) (1,814) (4,924) (6,425) (2,434) (9,705)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes.............. (964) 2,389 7,469 (10,299) 13,647 12,848 21,965
Provision for income taxes..................... 264 654 1,588 3,847 2,027 2,029 2,856
Extraordinary gain............................. -- 416 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss).............................. $ (1,228) $ 2,151 $ 5,881 $(14,146) $ 11,620 $ 10,819 $ 19,109
======== ======== ======== ======== ======== ======== ========
Ratio of earnings to fixed charges(3).......... 0.68 2.30 6.04 -- 3.05 3.65 2.69
-------- -------- -------- -------- -------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, DECEMBER 31,
------------------------------------------------------ -------------------
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital................................ (1,201) 30,669 36,737 25,527 (30,245) 24,841 150,624
Total assets................................... 52,430 103,129 185,186 309,267 446,292 316,160 633,998
Long-term debt and capital lease obligations
including current portion.................... 17,243 4,755 23,055 75,566 165,916 71,705 206,242
Shareholders' equity........................... (2,256) 46,703 68,433 85,571 99,345 97,665 207,407
</TABLE>
- ---------------
(1) In fiscal 1996, the Company wrote off $29.0 million of in-process research
and development associated with the acquisition of Astron and also recorded
charges totaling $1.3 million for costs associated with the closing of one
of the Company's Malaysian plants and its Shekou, China operations.
(2) In fiscal 1997, the Company incurred plant closing expenses aggregating $5.9
million in connection with closing its manufacturing facility in Texas,
downsizing manufacturing operations in Singapore, the write-off of excess
equipment and severance obligations at the nCHIP semiconductor fabrication
operations.
(3) Earnings are defined as income before provisions for income taxes and fixed
charges. Fixed charges consist of interest expenses, amortization of debt
issuance costs and the portion of the rental expenses representative of the
interest expense component. Earnings were insufficient to cover fixed
charges in the fiscal year ended March 31, 1996 by $11.3 million.
26
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information contained herein, the matters discussed
below and elsewhere herein are forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended, and Section 27A
of the Securities Act of 1933, as amended. The words "expects," "anticipates,"
"believes," "intends," "plans" and similar expressions identify forward-looking
statements, which speak only as of the date hereof. These forward-looking
statements are subject to certain risks and uncertainties, including, without
limitation, those discussed in "Risk Factors," that could cause future results
to differ materially from historical results or those anticipated.
OVERVIEW
The Company was organized in Singapore in 1990 to acquire the Asian
contract manufacturing operations and certain U.S. design, sales and support
operations of Flextronics, Inc. (the "Predecessor"), which had been in the
contract manufacturing business since 1982. The acquisition of the selected
operations of the Predecessor for approximately $39.0 million was completed in
June 1990 and was financed with approximately $20.0 million of secured long-term
bank debt, $4.0 million of subordinated debt and $15.0 million of equity. After
such acquisition, the equity investors held approximately 55% of the outstanding
share capital of the Company. The Company's results of operations for periods
following the 1990 acquisition and through March 1994 reflect the interest
expense associated with the indebtedness incurred in connection with this
transaction.
In July 1993, a group of new investors acquired a controlling interest in
the Company through the acquisition of substantially all of the interest in the
Company that had been retained by the Predecessor, a direct equity investment of
$3.2 million in the Company and the purchase of a portion of the shares acquired
by the investors in the 1990 acquisition. In December 1993, the Company raised
an additional $7.0 million of equity capital from investors ($3.7 million of
which represented the conversion of its outstanding subordinated debt into
equity). In March 1994, the Company raised $32.5 million in an initial public
offering of Ordinary Shares. In August 1995, the Company raised an additional
$22.3 million in a public offering of Ordinary Shares.
In recent years, the Company has substantially expanded its manufacturing
capacity, technological capabilities and service offerings, through both
acquisitions and internal growth. See "Risk Factors -- Management of Expansion
and Consolidation," "Risk Factors -- Acquisitions" and Note 11 of Notes to
Consolidated Financial Statements.
In January 1995, the Company acquired nCHIP, Inc. ("nCHIP") in exchange for
an aggregate of approximately 2,450,000 Ordinary Shares in a transaction
accounted for as a pooling-of-interests. The Company sold nCHIP's semiconductor
wafer fabrication facilities to a third party in February 1998.
In February 1996, the Company acquired Astron Group Limited ("Astron") in
exchange for (i) $13.4 million in cash, (ii) $15.0 million in 8% promissory
notes ($10.0 million of which was paid in February 1997 and $5.0 million of
which was paid in February 1998), (iii) 238,684 Ordinary Shares issued at
closing and (iv) Ordinary Shares with a value of $10.0 million to be issued on
June 30, 1998. The Company also paid an earnout of an additional $6.25 million
in cash in April 1997, based on the pre-tax profit of Astron for the calendar
year ended December 31, 1996. In addition, the Company agreed to pay a $15.0
million consulting fee in June 1998 to an entity affiliated with Stephen Rees, a
former shareholder and the Chairman of Astron, pursuant to a services agreement
among the Company, one of its subsidiaries and the affiliate of Mr. Rees (the
"Services Agreement"). Payment of the fee was conditioned upon, among other
things, Mr. Rees' continuing as Chairman of Astron through June 1998. Mr. Rees
currently also serves as a director and executive officer of the Company.
In March 1997, the Company and Mr. Rees' affiliate agreed to remove the
remaining conditions to payment of the fee and to reduce the amount of the fee,
which remains payable in June 1998, to $14.0 million. This reduction was
negotiated in view of (i) a settlement in March 1997 of the amount of the
earnout payable by the Company to the former shareholders of Astron in which the
Company agreed to certain matters,
27
<PAGE> 29
previously in dispute, affecting the amount of the earn-out payment, and (ii)
the elimination of the conditions to payment and of Mr. Rees' ongoing
obligations under the Services Agreement. Accordingly, the only remaining
obligation of either party is the Company's unconditional obligation to pay the
$14.0 million fee in June 1998. Of the $14.0 million, $5.0 million must be paid
in cash. The remainder may be paid in either cash or Ordinary Shares at the
option of the Company, and the Company intends to pay such amount in Ordinary
Shares.
Since the Company's acquisition of Astron, the net sales generated by
Astron's then-existing products and services, and by its products and services
then under development, have grown at rates significantly lower than those
anticipated by the Company at the time of the acquisition and significantly
lower than those assumed in the independent valuation used by the Company in
allocating the purchase price of Astron to the assets acquired. The Company
believes that this is attributable primarily to (i) delays in developing certain
new technologies as a result of several factors, including the unanticipated
complexity of many of the new technologies, difficulties in achieving expected
production yields, changes in the Company's development priorities and
unavailability of certain materials; (ii) interruptions in production and
diversions of resources, resulting from a fire in Astron's facilities in Doumen,
China in April 1996 (although the Company does not currently expect that such
event will have a significant long-term effect on Astron's business, customer
base or intangible assets); (iii) reduced sales of certain products to end-users
by certain of Astron's customers; and (iv) changes in product mix that adversely
affected production efficiency. The Company estimates that, at the time of the
acquisition, the average remaining economic life of Astron's developed process
technologies was seven years. While the Company has completed the development of
certain of the technologies that were under development at the time of the
acquisition, the Company has not yet completed development of other technologies
that were material to its valuation of Astron and which it initially anticipated
completing in fiscal 1996 and 1997. The Company currently anticipates that
completion of these technologies will require the expenditure of approximately
$5.0 million through fiscal 1999, consisting primarily of the cost of internal
engineering staff and related overhead, materials costs and other expenses. The
completion of such development is subject to a number of uncertainties,
including potential difficulties in optimizing manufacturing processes and the
potential development of alternative technologies by competitors that could
render Astron's technologies uncompetitive or obsolete. Accordingly, no
assurances can be given as to whether, or when, the Company will be able to
complete the development of such technologies, as to the cost of such
development, or as to potential sales of products based on such technologies.
The capabilities provided by the technologies under development may not
otherwise be available to the Company. Accordingly, the failure by the Company
to successfully develop such technologies would limit the Company's ability to
compete effectively for business requiring certain advanced capabilities, and
would prevent it from achieving the anticipated benefits of the Astron
acquisition. See "Risk Factors -- Acquisitions" and "-- Results of
Operations -- Acquired In-Process Research and Development."
In the fourth quarter of fiscal 1996, the Company recorded charges totaling
$1.3 million for costs associated with the closing of one of the Company's
Malaysian plants and its Shekou, China operations in addition to the write-off
of $29.0 million of in-process research and development associated with the
acquisition of Astron. Without taking into account these write-offs and charges,
the Company's net income and earnings per share in fiscal 1996 would have been
$16.1 million and $1.05, 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 interests.
The Company's prior financial statements were not restated because the financial
results of Fine Line did not have a material impact on the consolidated results.
On December 20, 1996, the Company acquired 40% of FICO for $5.2 million. Of
this, the Company paid $3.0 million in December 1996 and paid the $2.2 million
balance in the third quarter of fiscal 1998. The Company also has an option to
purchase the remaining 60% interest of FICO in 1998 for a price that is
dependent on the financial performance of FICO for the year ending December 31,
1997.
On March 27, 1997, the Company acquired the Karlskrona Facilities for
approximately $82.4 million. The acquisition was financed by borrowings from
banks, which the Company repaid in October 1997 with the net proceeds from the
Company's debt and equity offerings. The transaction has been accounted for
under the
28
<PAGE> 30
purchase method. As a result, the purchase price was allocated to the assets
based on their estimated fair market values at the date of acquisition. The
Karlskrona Facilities include a 220,000 square foot facility and a 110,000
square foot facility, each of which is ISO 9002 certified. At the same time, the
Company and Ericsson entered into a multi-year purchase agreement under which
the Company manufactures and Ericsson purchases certain products used in the
business communications systems sold by Ericsson. The Company is currently
utilizing the Karlskrona Facilities to assemble and test printed circuit boards,
network switches, cordless base stations and other components for these systems.
The Company also intends to use the Karlskrona Facilities to offer advanced
contract manufacturing services to other European OEMs. Approximately 965
employees are currently based at the Karlskrona Facilities. See "Risk Factors --
Acquisitions" and "Business -- Recent Acquisitions."
On October 30, 1997 the Company acquired 92% of the outstanding ordinary
shares of Neutronics, an Austrian PCB assembly company with operations in
Austria and Hungary, in exchange for 2,806,000 Ordinary Shares of the Company.
Shing Leong Hui, Neutronics' majority shareholder prior to the acquisition, has
been appointed to the Company's board of directors. Neutronics' subsidiaries
have three manufacturing facilities in Hungary (including a campus in Sarvar)
and one manufacturing facility in Austria. These facilities, which total 718,000
square feet and have a total of approximately 3,500 employees, are engaged
primarily in PCB assembly, as well as related activities such as engineering and
design and injection molded plastics. Neutronics' net sales in the twelve months
ended June 30, 1997 were approximately $142.6 million. Neutronics' largest
customer is Philips Electronics, which accounted for approximately 57% of its
net sales for the nine month period ended September 30, 1997.
The acquisition of Neutronics will be accounted for as a
pooling-of-interests and, accordingly, the Company has restated its prior period
financial statements to give effect to this acquisition. The combined company
incurred expenses of approximately $4.0 million during the quarter ending
December 31, 1997 associated with this transaction and the cancellation of
Neutronics' planned initial public offering. The ability of the Company to
obtain the benefits of the Neutronics acquisition is subject to a number of
risks and uncertainties, including the Company's ability to successfully
integrate the operations of Neutronics and its ability to maintain and increase
sales to Neutronics customers. See "Risk Factors -- Acquisitions" and
"Business -- Recent Acquisitions."
On December 1, 1997 the Company acquired DTM Products, Inc., a
Colorado-based producer of injection molded plastics for North American OEMs, in
exchange for 252,469 Ordinary Shares, and Energipilot AB, a Swedish company
principally engaged in providing cables and engineering services for Northern
European OEMs, in exchange for 229,990 Ordinary Shares. The acquisitions of DTM
and Energipilot have been accounted for as poolings-of-interests. The Company
did not restate its prior period financial statements with respect to these
acquisitions because they did not have a material impact on its consolidated
results. In January 1998, the Company signed a definitive agreement to acquire
Conexao Informatica Ltda., a Brazil-based contract manufacturer. The acquisition
will be accounted for as a pooling-of-interests and is scheduled to close on
April 1, 1998, subject to various conditions.
The Company incurred expenses of approximately $4.0 million during the
quarter ended December 31, 1997 associated with the acquisitions of Neutronics,
DTM and Energipilot. The ability of the Company to obtain the benefits of these
acquisitions is subject to a number of risks and uncertainties, including the
Company's ability to successfully integrate the acquired operations and its
ability to maintain, and increase, sales to customers of the acquired companies.
There can be no assurance that any mergers or acquisitions will not materially
affect the Company. See "Risk Factors -- Acquisitions."
In addition to acquisitions, the Company has also substantially increased
overall capacity by expanding operations in North America, Asia and Europe in
the nine months ended December 31, 1997. In North America, the Company has
recently leased a new 71,000 square foot facility from which the Company offers
a wide range of engineering services, and in July 1997 the Company completed
construction of a new 73,000 square foot facility dedicated to high volume PCB
assembly. These new facilities are located adjacent to the Company's other San
Jose operations. Also in July 1997, the Company completed construction of a
101,000 square foot manufacturing facility on a 32-acre campus site in
Guadalajara, Mexico. In Asia, the Company
29
<PAGE> 31
has expanded its Doumen facilities by developing an additional 224,000 square
feet for miniaturized gold-finished PCB fabrication and for PCB and full system
assembly. The Company completed the construction of this expanded facility in
June 1997 and has commenced production at the new and expanded facilities. The
Company plans to significantly expand its manufacturing campuses in Shenzhen,
China, Sarvar, Hungary, Guadalajara, Mexico and San Jose, California by adding
new facilities and equipment.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statement of operations data expressed as a percentage of net sales.
<TABLE>
<CAPTION>
NINE MONTHS
FISCAL YEAR ENDED ENDED
MARCH 31, DECEMBER 31,
------------------------ ----------------
1995 1996 1997 1996 1997
----- -------- ----- -------- -----
<S> <C> <C> <C> <C> <C>
Net sales.............................................. 100.0 100.0 100.0 100.0 100.0
Cost of sales.......................................... 90.9 90.5 89.9 90.2 90.2
----- ----- ----- ----- -----
Gross margin........................................... 9.1 9.5 10.1 9.8 9.8
Selling, general and administrative.................... 5.4 4.9 5.7 5.6 4.9
Goodwill and intangible amortization................... 0.3 0.2 0.4 0.4 0.4
Provision for plant closings........................... -- 0.2 0.9 0.5 --
Acquired in-process research and development........... -- 5.1 -- -- --
----- ----- ----- ----- -----
Income(loss) from operations........................... 3.4 (0.9) 3.1 3.3 4.5
Merger-related expenses................................ (0.3) -- -- -- (0.5)
Other, net............................................. (0.6) (0.9) (1.0) (0.6) (1.2)
----- ----- ----- ----- -----
Income (loss) before income taxes...................... 2.5 (1.8) 2.1 2.7 2.8
Provision for income taxes............................. 0.5 0.7 0.3 0.4 0.4
----- ----- ----- ----- -----
Net income (loss)...................................... 2.0 (2.5) 1.8 2.3 2.4
===== ===== ===== ===== =====
</TABLE>
Net Sales
Substantially all of the Company's net sales have been derived from the
manufacture and assembly of products for OEM customers. Net sales for the nine
months ended December 31, 1997 increased 67.2% to $782.0 million from $467.8
million for the nine months ended December 31, 1996. The increase in sales for
the nine months was primarily due to (i) sales to Ericsson following the March
27, 1997 acquisition of the Karlskrona Facilities, (ii) an increase in sales to
certain existing customers, including Advanced Fibre Communications, Microsoft
and Braun/Thermoscan. This increase was partially offset by reduced sales to
certain customers, including Minebea, Visioneer, 3Com/US Robotics and Global
Village. See "Risk Factors -- Customer Concentration; Dependence on Electronics
Industry" and "Risk Factors -- Risks of Karlskrona Acquisition."
The Company's largest customers during the nine month period ending
December 31, 1997 were Ericsson and Philips Electronics. Net sales to Ericsson
for the nine month period accounted for approximately 28% of net consolidated
sales while net sales to Phillips Electronics for the nine month period
accounted for approximately 11% of net consolidated sales for the period. No
other customer accounted for more than 10% of consolidated net sales for the
nine month period ending December 31, 1997.
Net sales in fiscal 1997 increased 11.9% to $640.0 million from $572.0
million in fiscal 1996. This increase was primarily due to higher sales to
existing customers, including US Robotics, Microsoft, Phillips Electronics,
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
30
<PAGE> 32
reduction in sales to these customers was due in part to reductions in these
customers' sales to end-users. See "Risk Factors -- Rapid Technological Change."
Net sales in fiscal 1996 increased 95.8% to $572.0 million from $292.1
million in fiscal 1995. This increase was primarily the result of higher sales
to existing customers, including Phillips Electronics, Lifescan (a Johnson &
Johnson Company), Visioneer, Microcom and Global Village Communications, sales
to new customers in the computer and medical industries such as Apple Computer
and Thermoscan and the inclusion of A&A's and Astron's sales after their
acquisitions in April 1995 and February 1996, respectively. This was partially
offset by a significant decline in sales to IBM due to IBM's efforts to
consolidate more of its manufacturing business internally.
Gross Profit
Gross profit varies from period to period and is affected by, among other
things, product mix, component costs, product life cycles, unit volumes,
startup, expansion and consolidation of manufacturing facilities, pricing,
competition and new product introductions. Gross profit margin remained at 9.8%
for the nine months ended December 31, 1997 and for the nine months ended
December 31, 1996. The gross profit margin for the nine months ended December
31, 1997 was unfavorably impacted by increased depreciation, rent and other
fixed expenses as the Company commenced volume production in the new facilities
in Doumen, China and Guadalajara, Mexico. These expenses are expected to
continue to increase in fiscal 1999. See "Risk Factors --Management of
Consolidation and Expansion." The effect of these expenses on the Company's
gross profit margin was partially offset by the Company's manufacturing several
products on a consignment basis, which typically has higher gross profit margins
than turnkey projects. The Company anticipates that consignment activities will
decline as a percentage of its net sales in future periods. Prices paid to the
Company by its significant customers can vary significantly based on the
customer's order level, with per unit prices typically declining as volumes
increase. These changes in price and volume can materially affect the Company's
gross profit margin.
Gross margin increased to 10.1% in fiscal 1997 compared to 9.5% 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 than the
Company's facilities in other locations, and (iii) increased sales, resulting in
increased labor and overhead absorption. This benefit was partially offset by
the closing of manufacturing operations at the Company's Richardson, Texas
facility and the closure of the Company's nCHIP fabrication facility, and the
related inventory write-offs. See "Risk Factors -- Management of Expansion and
Consolidation."
Gross profit margin increased slightly to 9.5% in fiscal 1996 as compared
to 9.1% in fiscal 1995 mainly due to the lower gross profits from the Neutronics
facilities in Hungary and Austria in fiscal 1995. The increase in gross profit
margin was partially offset by 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.
Cost of sales included research and development costs of approximately
$860,000 and $687,000 for the nine months ended December 31, 1997 and 1996,
respectively and $913,000 and $153,000 in fiscal 1997 and 1996, respectively.
These costs are associated with research and development expenditures in the
Company's Astron facility in Doumen, China.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months ended
December 31, 1997 increased to $38.1 million from $26.1 million for the nine
months ended December 31, 1996 but decreased as a percentage of net sales to
4.9% for the nine months ended December 31, 1997 from 5.6% for the nine months
ended December 31, 1996. The increase in selling expenses was primarily due to
the addition of new sales personnel in the United States and Europe and the
inclusion of Fine Line's selling expenses; the increase in general and
administrative expenses was primarily due to the inclusion of the operations of
the Karlskrona Facilities; and
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<PAGE> 33
the increase in corporate expenses is primarily due to growth in infrastructure
including the hiring of additional internal support personnel.
Selling, general and administrative expenses in fiscal 1997 increased to
$36.3 million from $28.1 million in fiscal 1996 and increased as percentage of
net sales to 5.7% in fiscal 1997 from 4.9% in fiscal 1996. The increase was
mainly due to: (i) the inclusion of Astron's selling and general administrative
expenses for all of fiscal 1997; (ii) increased consulting fees; and (iii)
increased sales and marketing expenses. The increased consulting fees resulted
from financial consulting services provided by two banks for a total of $719,000
in fiscal 1997. The Company also recorded $362,000 in March 1997 for
compensation for management services paid to a new executive officer who was
formerly a key employee of Ericsson in Sweden and who joined the Company upon
the acquisition of the Karlskrona Facilities.
Selling, general and administrative expenses in fiscal 1996 increased to
$28.1 million from $15.8 million in fiscal 1995, but decreased as percentage of
net sales to 4.9% in fiscal 1996 from 5.4% in fiscal 1995. The increase in
absolute dollars was principally due to costs associated with the expanded
facilities in China and Texas, increased sales personnel and market research
activities in the U.S. and the inclusion of A&A's and Astron's selling and
general administrative expenses after their acquisitions in April 1995 and
February 1996, respectively.
In addition, Neutronics was incorporated in the second half of fiscal 1995,
and thus only half a year of expenses were incurred compared to a full year for
fiscal 1996.
Goodwill and Intangible Assets Amortization
Goodwill (which represents the excess of the purchase price of an acquired
company over the fair market value of its net assets) and intangible assets are
amortized on a straight line basis over the estimated life of the benefits
received, which ranges from three to twenty-five years. Goodwill and intangible
assets amortization for the nine months ended December 31, 1997 increased to
$2.7 million from $2.2 million for the nine months ended December 31, 1996.
Goodwill and intangible assets amortization increased to $2.6 million in fiscal
1997 from $1.3 million in fiscal 1996. These increases were primarily due to the
amortization of additional goodwill and intangible assets which arose from the
Astron acquisition in 1996. In fiscal 1997, the Company recognized approximately
$8.5 million of additional goodwill, as a result of the acquisition of the 40%
interest in FICO and the Astron earnout payment of $6.25 million (which was
accrued to goodwill in March 1997 when the conditions to payment were resolved),
partially offset by the effect of the $1.0 million reduction in the payment due
in June 1998 to an affiliate of Stephen Rees. See "-- Overview".
Goodwill and intangible asset amortization increased to $1.3 million in
fiscal 1996 from $762,000 in fiscal 1995 primarily due to the goodwill from the
Company's acquisition of A&A and Astron.
In the second quarter of fiscal 1998, the Company reduced its estimate of
the useful lives of the goodwill and intangible assets (consisting of goodwill,
customer lists, trademarks and tradenames) arising from the Astron acquisition,
from approximately twenty years to ten years. This reduction increased the
goodwill and intangible amortization assets per quarter by approximately
$279,000.
Provision for Plant Closings
The provision for plant closings of $5.9 million in fiscal 1997 consists of
the costs incurred in closing the Texas facility, downsizing the Singapore
manufacturing operations and writing off obsolete equipment and incurring
certain severance obligations at the nCHIP semiconductor fabrication facility.
The $5.9 million provision includes $2.8 million for the write-off of obsolete
equipment, and $560,000 for severance payments to former employees at the nCHIP
and Texas facilities. The Texas facility had been primarily dedicated to
production for Global Village Communications and Apple Computer, to whom the
Company does not anticipate making substantial sales in future periods. The
nCHIP semiconductor fabrication facility was primarily dedicated to producing
PCBs for nCHIP's MCMs, and the Company has transferred these operations to a
third party. The provision also includes $2.0 million for severance payments and
$500,000 for the write-off of fixed assets in the Singapore manufacturing
facilities in connection with the shift of
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manufacturing operations to lower cost manufacturing locations. See Note 9 of
Notes to Consolidated Financial Statements.
The provision for plant closings of $1.3 million in fiscal 1996 was
associated with the write-off of certain obsolete equipment at one of the
Company's facilities in Malaysia and in Shekou, China. The provision for plant
closings were related to the Company ceasing its satellite receiver product line
in Malaysia and the closing of its manufacturing operations in Shekou, China.
Production from the Shekou facility has been moved to the Company's plant in
Xixiang, China.
Acquired In-Process Research and Development
In June 1997, the Company obtained an independent valuation of certain of
the assets of Astron and the In-Process R&D as of the date of Astron's
acquisition. This valuation determined that the fair value of the In-Process R&D
was $29.0 million. Accordingly, the Company adjusted the amount of In-Process
R&D written off in fiscal 1996 to $29.0 million. See "-- Overview" and
"-- Recent Changes in Accounting for Astron Acquisition."
Merger Expenses
In the quarter ended December 31, 1997, the Company recorded a one-time
charge of approximately $4.0 million related to the merger expenses associated
with the acquisitions of Neutronics, EnergiPilot, and DTM Products. Until it was
acquired by the Company, Neutonics had planned an initial public offering and
approximately $1.9 million of these merger expenses represented the costs paid
to the underwriters upon the cancellation of this offering.
The Company recorded a one-time charge of approximately $816,000 as a
result of the nCHIP acquisition in January 1995, which was accounted for as a
pooling of interest.
Other Income and Expense
Other expense, net for the nine months ending December 31, 1997 increased
to $9.7 million from $2.4 million for the nine months ended December 31, 1996.
The following table sets forth information concerning the components of other
income and expense.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED NINE MONTHS ENDED
MARCH 31, DECEMBER 31,
------------------------------- --------------------
1995 1996 1997 1996 1997
------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C>
Interest expense...................... $(1,166) $(4,286) $(6,426) $(4,513) $(13,183)
Interest income....................... 407 756 706 437 2,040
Foreign exchange gain(loss)........... (708) (638) 1,665 (17) 1,201
Income(loss) from associated
company............................. (729) -- 133 (137) 1,162
Permanent impairment in investment.... -- -- (3,200) -- --
Bank commitment fees.................. -- -- (750) -- --
Gain on sale of subsidiary............ -- -- 1,027 1,027 --
Other, net............................ 408 (653) 814 950 (645)
Minority interest..................... (26) (103) (394) (181) (280)
------- ------- ------- ------- --------
$(1,814) $(4,924) $(6,425) $(2,434) $ (9,705)
======= ======= ======= ======= ========
</TABLE>
Net interest expense increased to $11.1 million for the nine months ended
December 31, 1997 from $4.1 million for the nine months ended December 31, 1996.
The increase was primarily due to increased bank borrowings to finance the
acquisition of the Karlskrona Facilities, capital expenditures and the issuance
of the Old Notes in October 1997. The Company anticipates that its interest
expense will increase in future periods as a result of borrowings under its
credit facility. Interest income for the nine months ended December 31, 1997 and
December 31, 1996 was $2.0 million and $0.4 million, respectively. See
"-- Liquidity and Capital Resources."
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Net interest expense increased to $5.7 million in fiscal 1997 from $3.5
million in fiscal 1996 mainly due to increases in interest expense in connection
with additional indebtedness used to finance working capital requirements, to
finance acquisitions and to purchase machinery and equipment for capacity
expansion. The Company also recorded approximately $363,000 of interest expense
in fiscal 1997 related to the cash portion of the Company's obligations to an
affiliate of Stephen Rees, a former shareholder and the Chairman of Astron,
pursuant to the Services Agreement. See "-- Overview."
Net interest expense increased to $3.5 million in fiscal 1996 from $759,000
in fiscal 1995. The increase reflects interest incurred in connection with
additional indebtedness used to finance the cash portion of the A&A and Astron
acquisitions, to purchase machinery and equipment for capacity expansion and to
finance the Company's working capital requirements.
Foreign exchange gain increased to $1.2 million in the nine months ended
December 31, 1997 from $17,000 foreign exchange loss in the nine months ended
December 31, 1996. The increase in the exchange gains for the nine months ended
December 31, 1997 was mainly due to the strengthening of the U.S. dollar against
Asian currencies and the Swedish kronor. Foreign exchange gain increased to $1.7
million in fiscal 1997 from $638,000 loss in fiscal 1996. The foreign exchange
loss in fiscal 1996 was primarily due to the devaluation of the Hungarian
Forint. Before the establishment in late 1995 of customs-free zones at the
Company's sites in Hungary, the Company was obliged to prepay (and later
reclaim) customs duties to the Hungarian authorities on all imported materials.
As a result of the devaluation of the Hungarian Forint in 1995, the Company
incurred a loss of approximately $1.3 million on these receivables in calendar
1995. Since the Company no longer has to prepay such duties, depreciation of the
Hungarian Forint generally benefits the Company's results of operations as it
reduces the Company's personnel expenses. The foreign exchange loss was reduced
in fiscal 1996 to a loss of $638,000 from a loss of $708,000 in fiscal 1995. In
each case, the changes resulted from changes in the rates of exchange between
the U.S. dollar and local currencies of the Company's international operations
such as the Malaysia ringgit, Singapore dollar, and the Hungarian Forint. See
Note 2 of Notes to Consolidated Financial Statements.
The Company has not actively engaged in substantial exchange rate hedging
activities. However, in August 1997 the Company entered into forward exchange
contracts with respect to the kronor to reduce foreign exchange risks arising
from a kronor-denominated intercompany loan. These contracts were settled in
September 1997 and did not have a material effect on the Company's results of
operations or cash flow. The Company's Austrian and Hungarian subsidiaries have
limited involvement in the normal course of business with derivative financial
instruments with off-balance sheet risks as a means of hedging its fixed
Japanese yen and U.S. dollar currency exposure in relation to trade accounts
payable and fixed purchase obligations. The Company had $6.8 million and $6.5
million of aggregate foreign currency forward exchange contracts outstanding at
the end of fiscal 1997 and 1996, respectively. Because the Company only hedges
fixed obligations, the Company does not expect that these hedging activities
will have a material effect on its results of operations or cash flows. However,
there can be no assurance that the Company will engage in any hedging activities
in the future or that any of its hedging activities will be successful.
Income from associated companies for the nine months ended December 31,
1997 was $1.2 million compared to a loss of $137,000 for the nine month period
ended December 31, 1996. The income from associated companies resulted primarily
from the Company's investment in FICO and, to a lesser extent, certain minority
investments of Neutronics. The Company acquired a 40% interest in FICO in
December 1996. According to the equity method of accounting, the Company did not
recognize revenue from sales by FICO, but based on its ownership interest
recognized 40% of the net income or loss of the associated company. The Company
has recorded its 40% share of FICO's post-acquisition net income. Income from
associated companies was $133,000 in fiscal 1997.
Flextracker, the joint venture with HTS in which the Company previously
owned a 49% interest, commenced operations in June 1993. According to the equity
method of accounting, the Company previously did not recognize revenue from
sales by Flextracker, but based on its ownership interest recognized 49% of the
net income or loss of the joint venture. Due to start-up costs and manufacturing
inefficiencies, the Company recognized a loss of $729,000 associated with its
interest in Flextracker in fiscal 1995. The Company initially
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<PAGE> 36
contributed $2.5 million for a 49% interest in Flextracker and HTS contributed
$2.6 million for the remaining 51% interest. In April 1994 the Company and HTS
each loaned $1.0 million to Flextracker. In December 1994, the Company acquired
all of the net assets of Flextracker (except the $1.0 million loan made by HTS
to Flextracker) for approximately $3.3 million.
Other income (expense) increased to an expense of $1.8 million in fiscal
1997 from income of $653,000 in fiscal 1996, mainly due to permanent impairment
investments in fiscal 1997 represented by a write-off of publicly traded common
stock received from a customer in fiscal 1997 as payment of $3.2 million in
accounts receivable. As a result of a significant decline in the market value of
this common stock following its receipt by the Company, this common stock
subsequently was deemed to be permanently impaired in fiscal 1997, resulting in
a $3.2 million expense. Bank commitment fees represented $750,000 of commitment
fees written off in March 1997 when the bank's commitment expired unused. See
'-- Liquidity and Capital Resources."
Gain on sale of subsidiary of $1.0 million in the nine months ending
December 31, 1996 and fiscal 1997 was due to a gain from the sale of a Hungarian
subsidiary.
Other, net in fiscal 1997 included $898,000 received under the Company's
business interruption insurance policy as a result of an April 1996 fire at its
facilities in Doumen, China.
The minority interest in the nine months ended December 1997 and fiscal
1997 comprised of the 8% minority interest in Neutronics not acquired by the
Company in October 1997 and 4.1% minority interest in Ecoplast, a subsidiary of
Neutronics held by a third party. The minority interest expense in the nine
months ended December 1997 and fiscal 1997 was $280,000 and $394,000,
respectively.
Provision for Income Taxes
The Company is structured as a holding company, conducting its operations
through manufacturing and marketing subsidiaries in Austria, China, Hungary,
Malaysia, Mauritius, Mexico, The Netherlands, Singapore, Sweden, the United
Kingdom, and the United States. Each of these subsidiaries is subject to
taxation in the country in which it has been formed. The Company's Asian
manufacturing subsidiaries have at various times been granted certain tax relief
in each of these countries, resulting in lower taxes than would otherwise be the
case under ordinary tax rates. See Note 7 of Notes to Consolidated Financial
Statements.
The Company's consolidated effective tax rate for any given period is
calculated by dividing the aggregate taxes incurred by each of the operating
subsidiaries and the holding company by the Company's consolidated pre-tax
income. Losses incurred by any subsidiary or by the holding company are not
deductible by the entities incorporated in other countries in the calculation of
their respective local taxes. For example, the charge for the closing of
manufacturing operations at the Company's facility in Richardson, Texas in
fiscal 1997 was incurred by a United States subsidiary that did not have income
against which this charge could be offset. The ordinary corporate tax rates for
calendar 1997 were 34%, 26%, 18.0%, 16.5% and 15% in Austria, Singapore,
Hungary, 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 Hungarian subsidiaries have been on a tax holiday
that expired on December 31, 1997. Effective January 1, 1998, the Company's
Hungarian subsidiaries will be subject to corporate income taxes at a flat rate
of 18%, which will effectively be reduced to 7.2% in the years 1998 through 2002
because a 60% exemption will apply. As a result of this change in tax status,
the Company expects to be subject to current income taxes in Hungary in future
years. The Company's U.S. and U.K. subsidiaries are subject to ordinary
corporate tax rates of 35% and 33% respectively. However, these tax rates did
not have any material impact on the Company's taxes in fiscal 1997 due to the
operating losses of these two subsidiaries in this period. The Company's Swedish
subsidiary, which began operation on March 27, 1997 with the acquisition of the
Karlskrona Facilities, will be subject to an ordinary corporate tax rate of 28%.
The Company's consolidated effective tax rate was 13% for the nine months
ended December 31, 1997 compared to 15.8% in the nine months ended December 31,
1996 and 14.9% in fiscal 1997. The Company reduced the effective tax rate on
certain of its subsidiaries that had certain profitable operations by applying
net loss carry forwards. In addition, the Company has reduced its effective tax
rate by shifting some of its
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<PAGE> 37
manufacturing operations from Singapore, which has an ordinary corporate tax
rate of 26%, to low cost manufacturing operations located in countries with
lower corporate tax rates. The provision for plant closings of $1.3 million and
the $29.0 million write-off of In-Process R&D in fiscal 1996 resulted in
aggregate net losses for that year, but the Company incurred taxes on the
profitable operations of certain of its subsidiaries. If the provision for plant
closings and In-Process R&D written off are excluded from such calculation, the
Company's fiscal 1996 effective tax rate would have been approximately 19%.
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 with respect
to approved fixed capital expenditures subject to certain conditions. These
allowances have been utilized to reduce its taxable income since fiscal 1991,
and were fully utilized at the end of fiscal 1996. The Company's investments in
its plants in Xixiang and Doumen, China fall under the "Foreign Investment
Scheme" which entitles the Company to apply for a five year tax incentive. The
Company obtained the tax incentive for the Doumen plant in December 1995 and the
Xixiang plant in October 1996. With the approval, the Company's tax rates on
income from these facilities during the incentive period will be 0% in years 1
and 2 and 7.5% in years 3 through 5, commencing in the first profitable year. In
fiscal 1993, the Company transferred its offshore marketing and distribution
functions to a newly formed marketing subsidiary located in Labuan, Malaysia,
where the tax rate is de minimis. In February 1996, the Company transferred
Astron's sales and marketing business to a newly formed subsidiary in Mauritius,
where the tax rate is 0%. The Company's Malaysian manufacturing subsidiary has
obtained a five year pioneer certificate from the relevant authority that
provides a tax exemption on manufacturing income from certain products in
Johore, Malaysia. To date, this incentive has had a limited impact on the
Company due to the relatively short history of its Malaysian operations and its
tax allowances and loss carry forwards. 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%.
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 flows would be
adversely affected. In addition, the expansion by the Company of its operations
in North America and Northern Europe may increase its worldwide effective tax
rate. See "Risk Factors -- Risk of Increased Taxes."
At March 31, 1997, the Company had net operating loss carryforwards of
approximately $30.7 million for U.S. federal income tax purposes which will
expire between 2003 and 2011 if not previously utilized. Utilization of the U.S.
net operating loss carryforwards may be subject to an annual limitation due to
the change in ownership rules provided by the Internal Revenue Code of 1986.
This limitation and other restrictions provided by the Internal Revenue Code of
1986 may reduce the net operating loss carryforward such that it would not be
available to offset future taxable income of the U.S. subsidiary. At March 31,
1997, the Company had net operating loss carryforwards of approximately $10.0
million and $632,000 in the U.K. and Malaysia, respectively. The utilization of
these net operating loss carryforwards is limited to the future operations of
the Company in the tax jurisdictions in which such carryforwards arose. These
losses carryforward indefinitely. See Note 7 of Notes to Consolidated Financial
Statements.
Variability of Results
The Company has experienced, and expects to continue to experience,
significant periodic and quarterly fluctuations in results of operations due to
a variety of factors. These factors include, among other things,
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<PAGE> 38
timing of orders, the short-term nature of most customers' purchase commitments,
volume of orders relative to the Company's capacity, customers' announcement,
introduction 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, mix of
orders filled, timing of acquisitions and related expenses 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 revenues or results
of operations may be below the expectations of public market analysts and
investors. In such event, the price of the Company's Ordinary Shares would
likely be materially adversely affected. See "Risk Factors -- Variability of
Customer Requirements and Operating Results."
The Company's recently acquired Neutronics subsidiary has experienced
fluctuations in its results of operations during the prior fiscal years,
principally due to the seasonality of its operations. Most of Neutronics sales
generally occurred in the quarter ending September and December of each year as
most of the Company's customers are concentrated in the consumer electronics
industry where new products tend to be introduced to the market in the autumn
and where sales of existing products are higher in the period preceding
Christmas. Neutronics operating expenses are relatively fixed resulting in
operations for the March and June quarters being significantly lower than the
operating results for the September and December quarters. The sales mix for
Neutronics has changed reducing the impact of seasonality. The Company does not
anticipate the historical seasonality of Neutronics sales to have a material
impact on consolidated sales and gross margins.
BACKLOG
The Company's backlog was approximately $196.0 million at December 31, 1997
and $114.9 million at December 31, 1996. Backlog consists of contracts or
purchase orders with delivery dates scheduled within the next 60 days as
customers have the right to typically change their orders beyond 60 days. Even
within this 60-day period, contracts and purchase orders are often subject to
rescheduling or cancellation. Because of the timing of orders, overall
decreasing lead times and delivery intervals, customer and product mix and the
possibility of customer changes in delivery schedules, the Company's backlog as
of any particular date is not indicative of actual sales for any succeeding
period.
LIQUIDITY AND CAPITAL RESOURCES
The Company has funded its operations from the proceeds of public offerings
of equity securities, cash and cash equivalents generated from operations, bank
debt and lease financing of capital equipment. In March 1997, the Company
terminated its $48.0 million line of credit from several banks and obtained a
new $175.0 million credit facility. At December 31, 1997 the Company had cash
and cash equivalents balances totaling $73.3 million, outstanding bank
borrowings of $14.5 million and an aggregate of $105.0 million available for
borrowing under the Credit Facility subject to compliance with certain financial
ratios. The Company also completed the issuance of $150.0 million principal
amount senior subordinated notes due in 2007.
Net cash and cash equivalents provided by operating activities for the nine
months ended December 31, 1997 decreased to $4.4 million from $42.1 million for
the nine month period ending December 31, 1996. The decrease in cash and cash
equivalents from operating activities was primarily due to increases in accounts
receivables and inventories of $73.7 million partially offset by a $40.4 million
increase in accounts payable.
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Depreciation and amortization expense was $22.0 million and $13.4 million for
the nine months ended December 31, 1997 and December 31, 1996, respectively.
Net cash and cash equivalents provided by operating activities in fiscal
1997 was $54.4 million, consisting primarily of net income of $11.6 million,
depreciation and amortization of $18.1 million, provision for plant closing of
$5.3 million and increases in accounts payable, accrued liabilities and others
of $25.7 million.
Net cash and cash equivalents provided by operating activities in fiscal
1996 was $2.4 million, consisting primarily of a net loss of $14.1 million,
largely offset by the $29.0 million write-off of In-Process R&D, depreciation
and amortization of $13.9 million, and increases in accounts payable, accrued
liabilities and others of $14.7 million. Cash flows from operating activities
were further reduced by increases in accounts receivables of $29.0 million and
increases in inventories of $19.6 million.
Net cash and cash equivalents used by operating activities in fiscal 1995
was $5.2 million, consisting primarily of increases in accounts receivables and
inventories of $36.8 million partially offset by increases in accounts payable
of $19.9 million and depreciation and amortization expense of $7.2 million.
Accounts receivable, net of allowance for doubtful accounts increased to
$122.6 million at December 31, 1997 from $87.5 million at March 31, 1997. The
increase in accounts receivable was primarily due to a 67% increase in sales for
the nine months ended December 31, 1997. Inventories increased to $147.1 million
at December 31, 1997 from $124.4 million at March 31, 1997. The increase in
inventories was mainly a result of increased purchases of material to support
the growing sales. The Company's allowance for doubtful accounts increased from
$6.1 million at March 31, 1997 to $7.1 million at December 31, 1997. The
Company's allowance for inventory obsolescence increased from $6.2 million at
March 31, 1997 to $7.1 million at December 31, 1997.
Accounts receivable, net of allowance for doubtful accounts, decreased to
$87.5 million at March 31, 1997 from $97.3 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 $124.4 million
at March 31, 1997 from $65.9 million at March 31, 1996. The increase in
inventories was mainly a result of the acquisition of $55.3 million of
inventories at the Karlskrona Facilities. The Company's allowances for doubtful
accounts increased to $6.1 million at March 31, 1997 from $3.8 million at March
31, 1996. The Company's allowance for inventory obsolescence increased to $6.2
million at March 31, 1997 from $4.6 million at March 31, 1996. The increases in
the allowances were due to the increases in sales and inventories during fiscal
1997.
Accounts receivable, net of allowance for doubtful accounts, increased to
$97.3 million at March 31, 1996 from $58.1 million at March 31, 1995 and
inventories increased to $65.9 million at March 31, 1996 from $42.4 million at
March 31, 1995. The increase in accounts receivable and inventories was mainly
due to the 95.8% increase in sales during fiscal 1996. The Company's allowances
for doubtful accounts increased from $1.8 million at March 31, 1995 to $3.8
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 Malaysian plants.
Net cash and cash equivalents used in investing activities during the nine
months ended December 31, 1997 was $74.6 million, consisting primarily of
expenditures for new and expanded facilities, including the construction of new
facilities in Doumen, China, Guadalajara, Mexico and San Jose, California and
the acquisition of machinery and equipment in the facility in San Jose,
California and the Karlskrona Facilities. Net cash and cash equivalents used in
investing activities during the nine months ended December 31, 1996 was $25.0
million, consisting primarily of acquisitions of equipment and building
construction.
Net cash and cash equivalents used in investing activities in fiscal 1997
was $117.6 million, consisting primarily of $82.4 million for the acquisition of
the Karlskrona Facilities, and $37.5 million of expenditures for machinery and
equipment in the Company's, China, Mexico and California manufacturing
facilities and $3.1 million cash paid in November for the 40% interest in FICO.
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Net cash and cash equivalents used in investing activities in fiscal 1996
was $39.8 million, consisting primarily of $23.5 million of expenditures for
machinery and equipment in the Company's Texas, China and California
manufacturing facilities as well as $15.2 million for the cash portion of the
purchase prices paid in fiscal 1996 for the A&A and Astron acquisitions.
Net cash and cash equivalents used in investing activities in fiscal 1995
was $22.3 million, consisting primarily of $21.8 million of expenditures for
buildings, machinery and equipment. Approximately $14.3 million in capital
expenditures relates to the recently acquired Neutronics operations.
Net cash and cash equivalents provided by financing activities was $120.2
million for the nine months ended December 31, 1997 compared to net cash and
cash equivalents used in financing activities of $11.7 million for the nine
months ended December 31, 1996. Net cash and cash equivalents provided by
financing activities for the nine months ended December 31, 1997 resulted
primarily from net proceeds of the issuance of senior subordinated notes of
$145.7 million and net proceeds from the equity offering of $95.3 million,
partially offset by repayments of bank borrowings, capital leases and long-term
debts of $128.0 million.
Net cash and cash equivalents provided by financing activities in fiscal
1997 was $79.0 million, consisting primarily of bank borrowings and proceeds
from long term debt of $160.9 million. This was partially offset by $64.0
million in repayments of bank borrowings, $10.0 million in repayments of notes
to Astron's former shareholders, $8.0 million in repayments of capital lease
obligations and $4.4 million in repayment of loan from a related company.
Net cash and cash equivalents provided by financing activities in fiscal
1996 was $34.0 million, consisting primarily of $22.3 million from the sale of
1,000,000 newly issued Ordinary Shares and net bank borrowings of $22.9 million.
This was partially offset by $5.8 million in repayments of capital lease
obligations and $6.4 million repayment of loan from a related company.
Net cash and cash equivalents provided by financing activities in fiscal
1995 was $10.4 million, consisting primarily of borrowings from a related party
which was repaid in fiscal 1996 and fiscal 1997.
During the quarter ended March 31, 1997, the Company obtained a commitment
for a new $100.0 million credit facility for which it paid commitment fees of
$750,000. Ultimately, however, the Company required a larger credit facility in
order to fund the acquisition of the Karlskrona Facilities. As a result, the
$100.0 million facility was never consummated and expired during the quarter
unused. Instead of consummating this $100.0 million credit facility and
borrowing under this commitment, the Company entered into a $175.0 million
credit facility with BankBoston, N.A. (the "Credit Facility") in March 1997 to
provide funding for the acquisition of the Karlskrona Facilities, for capital
expenditures and for general working capital. The Company paid a separate $2.2
million fee for the Credit Facility, which, together with other direct costs of
the Credit Facility, was capitalized and is being amortized over the term of the
Credit Facility.
The Credit Facility consists of two loan agreements. Under the Credit
Facility, the Company borrowed a $70.0 million term loan on March 27, 1997 and,
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 $105.0 million of revolving credit loans. The
revolving credit loans are subject to a borrowing base equal to 70% of
consolidated accounts receivable and 20% of consolidated inventory. As of
December 31, 1997, no balances were outstanding on the revolving credit loans
and the $70.0 million term loan was repaid in October 1997. Loans under the
Credit Facility will mature in March 2000. Loans to the Company are guaranteed
by certain of its subsidiaries and loans to the Company's United States
Subsidiary are guaranteed by the Company and by certain of the Company's
subsidiaries. The Credit Facility is secured by a lien on substantially all
accounts receivable and inventory of the Company and its subsidiaries, as well
as a pledge of the Company's shares in certain of its subsidiaries. The Credit
Facility contains a number of operating and financial covenants and provisions.
The Company was in compliance with all financial covenants and provisions as of
December 31, 1997. See "Description of the Credit Facility."
Proceeds from both the Company's October 1997 equity and senior
subordinated notes offerings were used to pay off the $70.0 million term loan
and the $77.0 million outstanding balance of the Credit Facility.
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<PAGE> 41
The Company intends to continue to borrow revolving credit loans under the
Credit Facility. See "Risk Factors -- Significant Leverage."
The Company's capital expenditures in the first nine months of fiscal 1998
were approximately $65.9 million, excluding capital expenditures financed by
capital leases of $5.7 million and the Company anticipates that its capital
expenditures in fiscal 1999 will be approximately $98 million, primarily
relating to the development of new and expanded facilities in San Jose,
California, Guadalajara, Mexico and Doumen, China. In addition, the Company
anticipates expending from $7.0 million to $15.0 million in fiscal 1998 and 1999
to implementat the new management information system, and anticipates funding
these expenditures with cash from operations and borrowings under the Credit
Facility. The Company also expended cash in the fourth quarter of fiscal 1997
and will be required to expend cash in fiscal 1998 pursuant to the terms of the
Astron acquisition. The Company paid an earnout of $6.25 million in cash in
April 1997, and will be required to make a principal payment of $5.0 million in
February 1998, pursuant to the terms of a note issued by it in connection with
the Astron acquisition. The Company is also required to make a $14.0 million
payment to an entity affiliated with Stephen Rees in June 1998. Of this amount,
$5.0 million is payable in cash and $9.0 million is payable in cash or, at the
option of the Company, in Ordinary Shares, and the Company intends to pay the
$9.0 million portion in Ordinary Shares. The Company also anticipates that its
working capital requirements will increase in order to support anticipated of
business. Future liquidity needs will depend on, among other factors, the timing
of expenditures by the Company on new equipment, the timing of capital
expenditures and the extent to which the Company utilizes operating leases for
the new facilities and equipment, levels of shipments by the Company and changes
in volumes of customer orders. The Company believes that the existing cash
balances, together with anticipated cash flow from operations, net proceeds of
its debt offering and amounts available under the Credit Facility, will be
sufficient to fund its operations through fiscal 1998.
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BUSINESS
The Company is a provider of advanced contract manufacturing services to
OEMs in the communications, computer, consumer electronics and medical device
industries. Flextronics offers a full range of services including product
design, PCB fabrication and assembly, materials procurement, inventory
management, final system assembly and test, packaging and distribution. The
components, subassemblies and finished products manufactured by Flextronics
incorporate advanced interconnect, miniaturization and packaging technologies,
such as SMT, MCM, COB, BGA and miniaturized gold-plated PCB technologies. The
Company's strategy is to use its global manufacturing capabilities and advanced
technological expertise to provide its customers with a complete manufacturing
solution, highly responsive and flexible service, accelerated time to market and
reduced production costs. The Company targets leading OEMs in growing vertical
markets with which it believes it can establish long-term relationships, and
serves its customers on a global basis from its strategically located facilities
in North America, East Asia and Northern Europe. The Company's customers include
Advanced Fibre Communications, Braun/ThermoScan, Cisco Systems, Ericsson, Harris
DTS, Lifescan (a Johnson & Johnson company), Microsoft, Philips Electronics and
3Com/US Robotics.
INDUSTRY OVERVIEW
Many OEMs in the electronics industry are increasingly utilizing contract
manufacturing services in their business and manufacturing strategies, and are
seeking to outsource a broad range of manufacturing and related engineering
services. Outsourcing allows OEMs to take advantage of the manufacturing
expertise and capital investments of contract manufacturers, thereby enabling
OEMs to concentrate on their core competencies. According to an independent
industry study, these trends and overall growth in OEMs' markets have resulted
in a compound annual growth rate in the electronics contract manufacturing
industry of over 30% from 1992 through 1996, to approximately $60.0 billion.
According to this study, the industry is expected to grow to approximately
$110.0 billion by 1999. OEMs utilize contract manufacturers to:
Reduce Production Costs. The competitive environment for OEMs requires
that they achieve a low-cost manufacturing solution, and that they quickly
reduce production costs for new products. Due to their established
manufacturing expertise and infrastructure, contract manufacturers can
frequently provide OEMs with higher levels of responsiveness, increased
flexibility and reduced overall production costs than in-house
manufacturing operations. The production scale, infrastructure, purchasing
volume and expertise of leading contract manufacturers can further enable
OEMs to reduce costs earlier in the product life cycle.
Accelerate Time to Market. Rapid technological advances and shorter
product life cycles require OEMs to reduce the time required to bring a
product to market in order to remain competitive. By providing engineering
services, established infrastructure and advanced manufacturing expertise,
contract manufacturers can help OEMs shorten their product introduction
cycles.
Access Advanced Manufacturing and Design Capabilities. As electronic
products have become smaller and more technologically advanced,
manufacturing processes have become more automated and complex, making it
increasingly difficult for OEMs to maintain the design and manufacturing
expertise necessary to remain competitive. Contract manufacturers enable
OEMs to gain access to advanced manufacturing facilities, packaging
technologies and design expertise.
Focus Resources. Because the electronics industry is experiencing
increased competition and technological change, many OEMs are focusing
their resources on activities and technologies where they add the greatest
value. Contract manufacturers that offer comprehensive services allow OEMs
to focus on their core competencies.
Reduce Investment. As electronic products have become more
technologically advanced, internal manufacturing has required significantly
increased investment for working capital, capital equipment, labor, systems
and infrastructure. Contract manufacturers enable OEMs to gain access to
advanced, high volume manufacturing capabilities without making the capital
investments required for internal production.
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<PAGE> 43
Improve Inventory Management and Purchasing Power. OEMs are faced with
increasing challenges in planning, procuring and managing their inventories
efficiently due to frequent design changes, short product life cycles,
large investments in electronic components, component price fluctuations
and the need to achieve economies of scale in materials procurement.
Contract manufacturers' inventory management expertise and volume
procurement capabilities can reduce OEM production and inventory costs,
helping them respond to competitive pressures and increase their return on
assets.
Access Worldwide Manufacturing Capabilities. OEMs are increasing their
international activities in an effort to lower costs and access foreign
markets. Contract manufacturers with worldwide capabilities are able to
offer such OEMs a variety of options on manufacturing locations to better
address their objectives regarding costs, shipment location, frequency of
interaction with manufacturing specialists and local content requirements
of end-market countries. In addition, OEMs in Europe and other
international markets are increasingly recognizing the benefits of
outsourcing.
STRATEGY
The Company's objective is to enhance its position as a provider of
advanced contract manufacturing and design services to OEMs worldwide. The
Company's strategy to meet this objective includes the following key elements:
Leverage Global Presence. The Company has established a manufacturing
presence in the world's major electronics markets -- Asia, North America
and Europe -- in order to serve the increasing outsourcing needs of
regional OEMs and to provide the global, large scale capabilities required
by larger OEMs. The Company has recently substantially expanded its
manufacturing operations by expanding its integrated campus in Doumen,
China, constructing a new manufacturing campus in Guadalajara, Mexico,
adding facilities in San Jose, California, acquiring the Karlskrona
Facilities in Karlskrona, Sweden and acquiring Neutronics, with
manufacturing operations in Austria and Hungary. By increasing the scale
and the scope of the services offered in each site, the Company believes
that it can better address the needs of leading OEMs that are increasingly
seeking to outsource high volume production of advanced products.
Provide a Complete Manufacturing Solution. The Company believes that
OEMs are increasingly requiring a wider range of advanced services from
contract manufacturers. Building on its integrated engineering and
manufacturing capabilities, the Company provides its customers with
services ranging from initial product design and development and prototype
production to final product assembly and distribution to OEMs' customers.
The Company believes that this provides greater control over quality,
delivery and cost, and enables the Company to offer its customers a
complete cost-effective solution.
Provide Advanced Technological Capabilities. Through its continuing
investment in advanced packaging and interconnect technologies (such as
MCM, COB, BGA and miniature gold-finished PCB capabilities), as well as its
investment in advanced design and engineering capabilities (such as those
offered by Fine Line), the Company is able to offer its customers a variety
of advanced design and manufacturing solutions. In particular, the Company
believes that its ability to meet growing market demand for miniaturized
electronic products will be critical to its ongoing success, and has
developed and acquired a number of innovative technologies to address this
demand.
Accelerate Customers' Time to Market. The Company's engineering
services group provides integrated product design and prototyping services
to help customers accelerate their time to market for new products. By
participating in product design and prototype development, the Company
often reduces the costs of manufacturing the product. In addition, by
designing products to improve manufacturability and by participating in the
transition to volume production, the Company believes that its engineering
services group can significantly accelerate the time to volume production.
By working closely with its suppliers and customers throughout the design
and manufacturing process, the Company believes that it can enhance
responsiveness and flexibility, increase manufacturing efficiency and
reduce total cycle times.
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Increase Efficiency Through Logistics. The Company is streamlining and
simplifying production logistics at its large, strategically located
facilities to decrease the costs associated with the handling and managing
of materials. The Company has incorporated suppliers of custom components
in its facilities in China and Mexico to further reduce material and
transportation costs. The Company has established warehousing capabilities
from which it can ship products into customers' distribution channels.
Target Leading OEMs in Growing Vertical Markets. The Company has
focused its marketing efforts on fast growing industry sectors that are
increasingly outsourcing manufacturing operations, such as the
communications, computer, consumer electronics and medical device
industries. The Company seeks to maintain a balance of customers among
these industries, establishing long-term relationships with leading OEMs to
become an integral part of their operations.
There can be no assurance that the Company's strategy, even if successfully
implemented, will reduce the risks associated with the Company's business. See
"Risk Factors."
CUSTOMERS
The Company's customers consist of a select group of OEMs in the
communications, computer, consumer electronics and medical device industries.
Within these industries, the Company's strategy is to seek long-term
relationships with leading companies that seek to outsource significant
production volumes of complex products. The Company has increasingly focused on
sales to larger companies and to customers in the communications industries. In
fiscal 1997 and the first nine months of fiscal 1998, the Company's five largest
customers accounted for approximately 49% and 59%, respectively, of net sales.
The loss of one or more major customers would have a material adverse effect on
the Company, its results of operations, prospects or debt service ability. See
"Risk Factors -- Customer Concentration; Dependence on Electronics Industry" and
"-- Variability of Customer Requirements and Operating Results."
The following table lists in alphabetical order certain of the Company's
largest customers in the nine months ended December 31, 1997 and the products
for which the Company provides manufacturing services.
<TABLE>
<CAPTION>
CUSTOMER END PRODUCTS
------------------------------------------------- -------------------------------------
<S> <C>
Auspex........................................... Drive carriers
Advanced Fibre Communications.................... Local line loop carriers
Braun/ThermoScan................................. Temperature monitoring systems
Cisco Systems.................................... Data communications products
Compaq........................................... Modems
Diebold.......................................... Automatic teller machines
Ericsson......................................... Business telecommunications systems
Harris DTS....................................... Network switches
Lifescan (a Johnson & Johnson company)........... Portable glucose monitoring system
Microsoft........................................ Computer peripheral devices
Philips Electronics.............................. Consumer electronics products
3Com/US Robotics................................. Pilot electronic organizers
</TABLE>
In addition, in fiscal 1997 and the first quarter of fiscal 1998, the
Company began manufacturing products for a number of new customers, including
Ascend Communications (telecommunications products), Philips Consumer
Products/Lucent (telephones), Bay Networks (data communications products), Nokia
(consumer electronics products and WebTV/Microsoft (consumer internet devices).
None of these customers are expected to represent more than 10% of the Company's
net sales in fiscal 1998.
In connection with the Karlskrona Acquisition, the Company and Ericsson
entered into a multi-year purchase agreement. Sales to Ericsson accounted for
approximately 28% of the Company's net sales in the first three quarters of
fiscal 1998, and the Company believes that sales to Ericsson will account for a
significant portion of its net sales in fiscal 1999. See "-- Karlskrona
Acquisition" and "Risk Factors -- Risks of Karlskrona Acquisition."
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SALES AND MARKETING
The Company achieves worldwide sales coverage through a direct sales force,
which focuses on generating new accounts, and through program managers, who are
responsible for managing relationships with existing customers and making
follow-on sales. In North America, the Company maintains sales offices in
California, Florida and Massachusetts. The Company's Asian sales offices are
located in Singapore and Hong Kong. In Europe, the Company maintains sales
offices in England, France, Germany and the Netherlands. The Company has
expanded its European and U.S. sales forces, and intends to establish additional
European sales offices in Sweden. In addition to its sales force, the Company's
executive staff plays an integral role in the Company's marketing efforts.
SERVICES
The Company provides a broad range of advanced engineering, manufacturing
and distribution services to OEM customers. These services are provided on a
turnkey basis and, to a lesser extent, on a consignment basis, and include
product design, PCB fabrication and assembly, materials procurement, inventory
management, final system assembly and test, packaging and distribution. The
components, subassemblies and complete products manufactured by the Company for
its OEM customers incorporate advanced interconnect, miniaturization and
packaging technologies, such as SMT, MCM, COB and BGA technologies. An
increasing portion of the Company's net sales (a majority of its net sales in
fiscal 1997 and the first quarter of fiscal 1998) were derived from the
manufacture and assembly of complete products that are substantially ready for
distribution by the OEM to its customers. The Company also designs and
manufactures miniature gold-finished PCBs that OEMs then incorporate into their
products.
Engineering Services
The engineering services group coordinates and integrates the Company's
worldwide design, prototype and other engineering capabilities. Its focused,
integrated approach provides the Company's customers with advanced service and
support and leverages the Company's technological capabilities. As a result, the
engineering services group enables the Company to strengthen its relationship
with manufacturing customers as well as to attract new customers who require
advanced design services.
The engineering services group actively assists customers with initial
product design in order to reduce the time from design to prototype, improve
product manufacturability and reduce product costs. The Company provides a full
range of electrical, thermal and mechanical design services, including CAE and
CAD-based design services, manufacturing engineering services, circuit board
layout and test development. The engineering services group also coordinates
industrial design and tooling for product manufacturing. After product design,
the Company provides prototype assemblies for fast turnaround. During the
prototype process, Company engineers work with customer engineers to enhance
production efficiency and improve product design. The engineering services group
then assists with the transition to volume production. By participating in
product design and prototype development, the Company can reduce manufacturing
costs and accelerate the time to volume production.
The Company's recent acquisitions have provided it with substantial
advanced engineering capabilities. The Company's 1996 acquisition of Fine Line,
a San Jose-based provider of quick-turn circuit board layout and prototype
services, provides the Company with substantial expertise in a broad range of
advanced circuit board designs, and the Company's 1995 acquisition of nCHIP
provides advanced MCM design capabilities. The Company has integrated the nCHIP
capabilities, and is integrating the Fine Line capabilities, with the Company's
existing design and prototype capabilities in its engineering services group.
The Company plans to expand its design and prototype capabilities in Westford,
Massachusetts and San Jose, California, and also intends to establish design and
prototype capabilities in the Karlskrona Facilities.
Materials Procurement and Management
Materials procurement and management consists of the planning, purchasing,
expediting and warehousing of the components and materials used in the
manufacturing process. The Company's inventory management expertise and volume
procurement capabilities contribute to cost reductions and reduce total
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<PAGE> 46
cycle time. The Company generally orders components after it has a firm purchase
order or letter of authorization from a customer. However, in the case of long
lead-time items, the Company will occasionally order components in advance of
orders, based on customer forecasts, to ensure adequate and timely supply.
Although the Company works with customers and third-party suppliers to reduce
the impact of component shortages, such shortages may occur from time to time
and may have a material adverse effect on the Company. See "Risk
Factors -- Limited Availability of Components." The campuses in China and Mexico
are designed to provide many of the custom components used by the Company
on-site, in order to reduce material and transportation costs, simplify
logistics and facilitate inventory management.
Assembly and Manufacturing
The Company's assembly and manufacturing operations include PCB assembly
and, increasingly, the manufacture of subsystems and complete products. Its PCB
assembly activities primarily consist of the placement and attachment of
electronic and mechanical components on printed circuit boards using both SMT
and traditional pin-through-hole ("PTH") technology. The Company also assembles
subsystems and systems incorporating PCBs and complex electromechanical
components, and, increasingly, manufactures and packages final products for
shipment directly to the customer or its distribution channels. The Company
employs just-in-time, ship-to-stock and ship-to-line programs, continuous flow
manufacturing, demand flow processes and statistical process control. The
Company has expanded the number of production lines for finished product
assembly, burn-in and test to meet growing demand and increased customer
requirements. In addition, the Company has invested in FICO, a producer of
injection molded plastic for Asia electronics companies with facilities in
Shenzhen, China.
As OEMs seek to provide greater functionality in smaller products, they
increasingly require advanced manufacturing technologies and processes. Most of
the Company's PCB assembly involves the use of SMT, which is the leading
electronics assembly technique for more sophisticated products. SMT is a
computer-automated process which permits attachment of components directly on
both sides of a PCB. As a result, it allows higher integration of electronic
components, offering smaller size, lower cost and higher reliability than
traditional manufacturing processes. By allowing increasingly complex circuits
to be packaged with the components placed in closer proximity to each other, SMT
greatly enhances circuit processing speed, and therefore board and system
performance. The Company also provides traditional PTH electronics assembly
using PCBs and leaded components for lower cost products.
With its acquisitions of Neutronics and DTM, the Company gained significant
plastic injection molding capabilities. In addition, the Company has a 40%
investment in FICO, which produces injection molded plastics for Asian
companies. Neutronics offers a wide range of custom-manufactured plastic
components for various sectors of the electronics industry, including consumer,
computer, telecommunications, medical and industrial. The Company's plastic
component manufacturing operations in Hungary utilize highly automated injection
molding processes.
The electronic products market is directly dependent on the plastic
components market for the packaging of an electronic product. The design of
plastic components for a new electronic product, and the associated sourcing of
plastic molds, normally involves a substantial lead time. As a result, plastic
suppliers with technical capabilities, such as Neutronics and DTM, are able to
provide additional services to electronic product manufacturers, such as the
development of plastic components and electronics assembly and development, to
improve the production process and reduce the finished product's time to market.
In addition, the Company has invested in emerging technologies that extend
its miniaturization capabilities. The Company's 1995 acquisition of nCHIP
provided it with advanced capabilities to design and assemble MCMs (collections
of integrated circuit chips interconnected within a single package), and the
Company now offers a range of MCM technologies from low-cost laminate MCMs to
high-performance, deposited thin-film MCMs. The Company assembles completed MCMs
in its San Jose, California facilities and also utilizes an outside assembly
company for assembly of completed MCMs.
The Company's 1996 acquisition of Astron provided it with significant
capabilities to fabricate miniature gold-finished PCBs for specialized
applications such as cellular phones, optoelectronics, LCDs, pagers and
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<PAGE> 47
automotive electronics. These advanced laminate substrates can significantly
improve a product's performance, while reducing its size and cost. The Company's
miniature, gold-finished PCBs are fabricated in the Company's facility in China.
The Company is currently expanding this facility to provide the capacity to
fabricate other complex PCBs.
The Company is also increasingly utilizing advanced interconnect and
packaging technologies such as chip on board ("COB") and ball grid array ("BGA")
technology. COB technology represents a configuration in which a bare,
unpackaged semiconductor is attached directly onto a PCB, wire bonded and then
encapsulated with a polymeric material. COB technology facilitates miniaturized,
low-profile assemblies, and can result in lower component costs and reduced time
to market. The Company has significant experience in utilizing COB technology to
manufacture a wide range of products. BGA technology is an emerging technology
for packaging semiconductors that can provide higher interconnect density and
improved assembly yields and reliability by assembling surface-mount packages to
the circuit board through an array of solder balls, rather than pin leads. The
Company has recently begun utilizing BGA technology to manufacture products for
OEMs.
Test
After assembly, the Company offers computer-aided testing of PCBs,
subsystems and systems, which contributes significantly to the Company's ability
to deliver high-quality products on a consistent basis. Working with its
customers, the Company develops product-specific test strategies. The Company's
test capabilities include management defect analysis, in-circuit tests and
functional tests. In-circuit tests verify that all components have been properly
inserted and that the electrical circuits are complete. Functional tests
determine if the board or system assembly is performing to customer
specifications. The Company either designs and procures test fixtures and
develops its own test software or utilizes its customers' existing test fixtures
and test software. In addition, the Company also provides environmental stress
tests of the board or system assembly.
Distribution
The Company offers its customers flexible, just-in-time delivery programs
allowing product shipments to be closely coordinated with customers' inventory
requirements. Increasingly, the Company is warehousing products for customers
and shipping those products directly into their distribution channels. The
Company believes that this service can provide customers with a more
comprehensive solution and enable them to be more responsive to market demands.
COMPETITION
The electronics contract manufacturing industry is extremely competitive
and includes hundreds of companies, several of whom have achieved substantial
market share. The Company competes against numerous domestic and foreign
contract manufacturers, and current and prospective customers also evaluate the
Company's capabilities against the merits of internal production. In addition,
in recent years the electronics contract manufacturing industry has attracted a
significant number of new entrants, including large OEMs with excess
manufacturing capacity, and many existing participants, including the Company,
have significantly increased their manufacturing capacity by expanding their
facilities and adding new facilities. In the event of a decrease in overall
demand for contract manufacturing services, this increased capacity could result
in substantial pricing pressures which could adversely affect the Company's
operating results. Certain of the Company's competitors, including Solectron
Corporation and SCI Systems, have substantially greater manufacturing,
financial, research and development and marketing resources than the Company.
Others, such as Jabil Circuits and Celestica, are rapidly increasing their sales
and capacity. As competitors increase the scale of their operations, they may
increase their ability to realize economies of scale, to reduce their prices and
to more effectively meet the needs of large OEMs. The Company believes that the
principal competitive factors in the segments of the contract manufacturing
industry in which it operates are cost, technological capabilities,
responsiveness and flexibility, delivery cycles, location of facilities, product
quality and range of
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<PAGE> 48
services available. Failure to satisfy any of the foregoing requirements could
materially adversely affect the Company's competitive position, its results of
operations, prospects or debt service ability.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 11,300 persons,
including approximately 995 employees in Sweden who were added with the
Karlskrona Acquisition and 3,485 employees in Austria and Hungary who were added
with the Neutronics acquisition. Most of the Company's non-management employees
outside of the United States are represented by labor unions. The Company has
never experienced a work stoppage or strike. The Company believes that its
employee relations are good.
The Company's success depends to a large extent upon the continued services
of key managerial and technical employees. The loss of such personnel could have
a material adverse effect on the Company, its results of operations, prospects
or debt service ability. To date, the Company has not experienced significant
difficulties in attracting or retaining such personnel. Although the Company is
not aware that any of its key personnel currently intend to terminate their
employment, their future services cannot be assured. See "Risk
Factors -- Dependence on Key Personnel and Skilled Employees."
RECENT ACQUISITIONS
On October 30, 1997 the Company acquired 92% of the outstanding ordinary
shares of Neutronics, an Austrian contract manufacturer with operations in
Austria and Hungary, for 2,806,000 Ordinary Shares of the Company. Neutronics'
net sales in the 12 months ended June 30, 1997 were approximately $142.6
million. Neutronics' customers include Philips Electronics, Nokia and other OEMs
in the consumer electronics, business electronics, computer telecommunications,
primary care, medical appliances and automotive electronics industries.
Approximately 80% of Neutronic's net sales for the year ended December 31, 1996
and 60% of its net sales for the six months ended June 30, 1997 were derived
from sales to Philips Electronics.
Neutronics conducts its operations through four manufacturing facilities,
one in Austria and three in Hungary. These facilities, which total 718,000
square feet and have a total of approximately 3,500 employees are engaged
primarily in PCB assembly, as well as injection molded plastics. Neutronics also
provides engineering services at its Althofen, Austria facility. The Company
believes that Neutronics' manufacturing sites in Hungary (at Tab, Sarvar and
Zalaegerszag) benefit from a relatively low cost of labor compared to Western
Europe and the United States. There can be no assurance that real wages in
Hungary will not rise to a level comparable to Western Europe or the United
States.
Neutronics commenced operations in July 1994 as a joint venture between a
subsidiary of Philips Electronics and Sandaplast B.V. ("Sandaplast"), a Dutch
company corporation based in Malaysia. Neutronics initially acquired Philips'
existing facility in Althofen, Austria, and subsequently established the three
Hungarian facilities, modernized the Austrian facility and added plastic
injection molding capabilities. Accordingly, Neutronics has a limited operating
history. At the time of the acquisition, Neutronics was owned by Philips,
Malaysian businessman Shing Leong Hui and Neutronics' management. Neutronics'
management retained ownership of eight percent of the shares of Neutronics and
S.L. Hui has joined the Company's Board of Directors.
On December 1, 1997, the Company acquired DTM Products, Inc., a
Colorado-based producer of injection molded plastics for North American OEMs, in
exchange for 252,469 Ordinary Shares, and Energipilot AB, a Swedish company
principally engaged in providing cables and engineering services for Northern
European OEMs, in exchange for 229,990 Ordinary Shares. On January 16, 1998, the
Company entered into an agreement to acquire Conexao Informatica Ltda., a
Brazil-based contract manufacturer.
The ability of the Company to obtain the benefits of the acquisitions of
Neutronics, DTM, and Energipilot is subject to a number of risks and
uncertainties, including the Company's ability to successfully integrate the
acquired operations and its ability to maintain, and increase, sales to
customers of the acquired companies. See "Risk Factors -- Acquisitions" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
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On March 27, 1997, the Company acquired from Ericsson the Karlskrona
Facilities located in Karlskrona, Sweden and related inventory, equipment and
other assets for approximately $82.4 million in cash. The Karlskrona Facilities
include a 220,000 square foot facility and a 110,000 square foot facility, each
of which is ISO 9002 certified. These facilities currently assemble PCBs,
network switches, cordless base stations and other components for business
communications systems sold by Ericsson. Approximately 870 Ericsson employees
based at the Karlskrona Facilities became employees of the Company at the
facilities. In addition, Ronny Nilsson, previously the Vice President and
General Manager, Supply and Distribution of Ericsson, was appointed President of
Flextronics International Sweden AB and Senior Vice President, Europe of the
Company.
The Company, certain of its subsidiaries and Ericsson also entered into the
related Karlskrona Purchase Agreement, under which the Company will manufacture
and Ericsson will purchase, for a three-year period, certain products used in
Ericsson's business communications systems. The Company believes that, as a
result, sales to Ericsson will account for a large portion of its net sales in
fiscal 1998. The Karlskrona Facilities' cost of sales and services (including
certain overhead allocations) for the year ended December 31, 1996 was
approximately 2.1 billion Swedish kronor (approximately $310.0 million based on
exchange rates at December 31, 1996). However, there can be no assurance as to
the volume of Ericsson's purchases, or the mix of products that it will
purchase, from the Karlskrona Facilities in any future period.
By acquiring the Karlskrona Facilities, the Company substantially increased
its worldwide capacity, obtained a strong base in Northern Europe and enhanced
its position as a contract manufacturer for the telecommunications industry,
which is increasingly outsourcing manufacturing. The Company also intends to use
the manufacturing resources provided by the Karlskrona Facilities to offer
services to other European OEMs, which it believes are also beginning to
outsource the manufacture of significant product lines.
The Company anticipates realizing approximately $285.0 million of sales
(based on current exchange rates) to Ericsson of products manufactured in the
Karlskrona Facilities in fiscal 1998; however, there can be no assurance that
the Company's sales to Ericsson will not be materially less than those
anticipated. The Company expects that its gross margin percentage on products
manufactured for Ericsson in the Karlskrona Facilities in fiscal 1999 will be
less than that realized by the Company as a whole in fiscal 1997 and the nine
months ended December 31, 1997. To the extent that the Company is successful in
increasing the capacity of the Karlskrona Facilities and in using these
facilities to provide services to other OEMs, the Company anticipates increased
operating efficiencies. There can be no assurance that the Company will realize
lower overhead or sales expenses or increased operating efficiencies as
anticipated.
The foregoing, and discussions elsewhere in this Prospectus, contain a
number of forward-looking statements relative to the benefits and effects of the
Karlskrona Acquisition and the Neutronics Acquisition, and the Company's
relationship with Ericsson including the Company's anticipated sales to
Ericsson, the Company's net sales, gross margins and results of operations, and
no assurances can be given as to the Company's ability to achieve such benefits
and results. The Karlskrona Acquisition, the Neutronics Acquisition and the
Company's business are subject to a number of risks that could adversely affect
the Company's ability to achieve these operating results and the anticipated
benefits of the Karlskrona Acquisition and the Neutronics Acquisition, including
the Company's ability to reduce costs at the Karlskrona Facilities, the
Company's lack of experience operating in Sweden, Austria and Hungary, the
Company's ability to transition the Karlskrona Facilities from captive
manufacturing for Ericsson to manufacturing for third parties and to expand
capacity at these facilities and to integrate these facilities into its global
operations. Further, changes in exchange rates between the Swedish kronor, the
Austrian schilling and the Hungarian forint on the one hand, and U.S. dollars on
the other, will affect the Company's operating results. See "Risk Factors --
Risks of Karlskrona Acquisition."
The Karlskrona Purchase Agreement contains cost reduction targets and price
limitations and imposes on the Company certain manufacturing quality
requirements, and there can be no assurance that the Company can achieve
acceptable levels of profitability under the Karlskrona Purchase Agreement or
reduce costs and prices to Ericsson over time as contemplated by the Karlskrona
Purchase Agreement. In addition, the Karlskrona Purchase Agreement requires that
the Company maintain a ratio of equity to total liabilities, debt
48
<PAGE> 50
and equity of at least 25%, and a current ratio of at least 120%. Further, the
Karlskrona Purchase Agreement prohibits the Company from selling or relocating
the equipment acquired in the transaction without Ericsson's consent. A material
breach by the Company of any of the terms of the Karlskrona Purchase Agreement
could allow Ericsson to repurchase the assets conveyed to the Company at the
Company's book value or to obtain other relief, including the cancellation of
outstanding purchase orders or termination of the Karlskrona Purchase Agreement.
Ericsson also has certain rights to be consulted on the management of the
Karlskrona Facilities and to approve the use of the Karlskrona Facilities for
Ericsson's competitors or for other customers where such use might adversely
affect Ericsson's access to production capacity at the facilities. In addition,
without Ericsson's consent, the Company may not enter into any transactions that
could adversely affect its ability to continue to supply products and services
to Ericsson under the Karlskrona Purchase Agreement or its ability to reduce
costs and prices to Ericsson. As a result of these rights, Ericsson may, under
certain circumstances, retain a significant degree of control over the
Karlskrona Facilities and their management. However, the Company understands
that it is Ericsson's intention that the Company utilize the Karlskrona
Facilities to provide services not just to Ericsson, but also to other OEMs, and
Ericsson will receive price reductions if the Company is able to reduce costs at
the Karlskrona Facilities through any resulting volume efficiencies.
FACILITIES
The Company has manufacturing facilities located in Austria, China,
Hungary, Malaysia, Mexico, Singapore, Sweden, the United Kingdom and the United
States. In addition, the Company provides engineering services at its facilities
in Austria, Singapore, California and Massachusetts. All of the Company's
manufacturing facilities are registered to the quality requirements of the
International Organization for Standardization (ISO 9002) or are in the process
of final certification.
49
<PAGE> 51
Certain information about the Company's manufacturing and engineering
facilities as of December 15, 1997 is set forth below:
<TABLE>
<CAPTION>
YEAR APPROXIMATE OWNED/
LOCATION COMMENCED(1) SQUARE FEET LEASED(2) SERVICES
- -------------------------------- ------------ ----------- --------- -------------------------------
<S> <C> <C> <C> <C>
Manufacturing Facilities
Althofen, Austria(3).......... 1997 153,000 Owned Full system manufacturing; PCB
assembly.
Shenzhen, China............... 1995 90,000 Leased High volume PCB assembly.
Hong Kong, China(4)........... 1996 45,000 Leased Fabrication of high density
PCBs
Doumen, China(4).............. 1996 330,000(4) Owned(5) Fabrication of high density,
miniaturized PCBs. High volume
PCB assembly.
Sarvar, Hungary(3)............ 1997 298,000 Owned(6) Full system manufacturing; PCB
assembly; plastic injection
molding.
Tab, Hungary(3)............... 1997 170,000 Owned Full system manufacturing; PCB
assembly.
Zalaegerszeg, Hungary(3)...... 1997 97,000 Owned Full system manufacturing; PCB
assembly.
Johore, Malaysia.............. 1991 80,000 Owned Full system manufacturing; PCB
assembly.
Guadalajara, Mexico........... 1997 101,000 Owned High volume PCB assembly.
Singapore(7).................. 1982 47,000 Leased Complex, high value-added PCB
assembly.
Karlskrona, Sweden............ 1997 330,000 Owned(8) Assembly and test of complex
PCBs and systems.
Stockholm, Sweden(9).......... 1997 70,000 Leased Assembly of cables and cable
assemblies.
Tonypandy, Wales(10).......... 1995 50,000 Owned Full system manufacturing;
medium complexity PCB assembly.
San Jose, California.......... 1994 65,000 Leased Full system manufacturing; PCB
assembly.
San Jose, California.......... 1996 32,500 Leased Complex, high value-added PCB
assembly.
San Jose, California.......... 1997 73,000 Owned Complex, high value-added PCB
assembly.
Niwot, Colorado(11)........... 1997 40,000 Leased Plastic injection molding.
Engineering Facilities
Althofen, Austria............. 1997 --(12) Owned Design, prototype and
engineering services.
Singapore..................... 1982 --(13) -- Design and prototype services.
Karlskrona, Sweden............ 1997 --(14) -- Design and prototype services.
Westford, Massachusetts....... 1987 9,112 Leased Design and prototype services.
San Jose, California.......... 1996 71,000 Leased Engineering services and
corporate functions.
</TABLE>
- ---------------
(1) Refers to year acquired, leased or constructed by the Company or its
predecessor.
(2) The leases for the Company's leased facilities expire between December 1997
and July 2005. In addition, the Company has a 47,000 square foot
manufacturing facility in Richardson, Texas whose manufacturing operations
have been closed. The Company leases this facility under a lease that
expires in April 2000, and the Company currently is using this facility for
administrative functions.
(3) Acquired by the Company in fiscal 1998 in connection with the Neutronics
acquisition.
(4) Acquired by the Company in fiscal 1996 in connection with the Astron
acquisition.
(5) Excludes approximately 370,000 square feet used for dormitories,
infrastructure and other functions. The Company has land use rights for
this facility through 2020.
50
<PAGE> 52
(6) The Company currently owns the land and certain of the buildings located in
the Sarvar Industrial Park and leases other buildings at this location.
(7) The Company downsized manufacturing operations at this facility in fiscal
1997.
(8) Ericsson has retained certain rights with respect to the Company's use and
disposition of the Karlskrona Facilities. See "-- Recent Acquisitions."
(9) Acquired by the Company in fiscal 1998 in connection with the Energipilot
acquisition.
(10) Acquired by the Company in fiscal 1996 in connection with the A&A
acquisition.
(11) Acquired by the Company in fiscal 1998 in connection with the DTM
acquisition.
(12) Located within the 153,000 square foot manufacturing facility in Althofen.
(13) Located within the 47,000 square foot manufacturing facility in Singapore.
(14) Located within the 330,000 square foot manufacturing facilities in
Karlskrona.
In fiscal 1998, the Company substantially increased overall capacity by
expanding operations in North America, East Asia and Northern Europe. As a
result of these expansions and the Company's acquisitions of the Karlskrona
Facilities, Neutronics, Energipilot and DTM, the Company has significantly
increased its manufacturing capacity, adding 1,005,000 square feet principally
dedicated to manufacturing operations. The Company plans to significantly expand
its manufacturing campuses in Shenzhen, China, Sarvar, Hungary, Guadalajara,
Mexico and San Jose, California by adding new facilities and equipment. There
can be no assurance that the Company will not encounter unforeseen difficulties,
costs or delays in developing, constructing and equipping the new and expanded
manufacturing facilities. See "Risk Factors -- Management of Expansion and
Consolidation."
In North America, the Company has recently leased a new 71,000 square foot
facility, from which the Company offers a wide range of engineering services,
including product design and prototype development, and in July 1997 the Company
completed construction of a new 73,000 square foot facility, dedicated to high
volume PCB assembly. These new facilities are located adjacent to the Company's
other San Jose operations. Also in July 1997, the Company completed construction
of a 101,000 square foot manufacturing facility on a 32-acre campus site in
Guadalajara. This new facility currently has over 200 employees and has begun
PCB assembly operations.
In Asia, the Company has expanded its Doumen facilities by developing an
additional 240,000 square feet of facilities for fabrication of miniaturized
gold-finished PCB fabrication and for PCB and full system assembly. The Company
completed this expansion in June 1997. The Doumen campus, located on a 15-acre
site, now includes approximately 330,000 square feet of manufacturing facilities
as well as approximately 370,000 square feet of facilities used for dormitories,
infrastructure and other functions, with over 1,000 employees. The Company is
currently installing equipment and infrastructure at its new facilities in
Doumen, Guadalajara, and San Jose.
The campus facilities in Doumen and Guadalajara are designed to be
integrated facilities that can produce many of the custom components used by the
Company, manufacture complete products for customers, warehouse the products and
distribute them directly to customer's distribution channels. The Company
believes that by offering all of those capabilities at the same site, it can
reduce material and transportation costs, simplify logistics and communications,
and improve inventory management, providing customers with a more complete,
cost-effective manufacturing solution.
The Company is in the process of substantially expanding its manufacturing
capacity at many of its facilities, and plans to significantly expand its
manufacturing campuses in Shenzhen, China, Sarvar, Hungary, Guadalajara, Mexico
and San Jose, California by adding new facilities and equipment. The Company
expects substantial new capital expenditures and operating lease commitments in
connection with this expansion. The Company intends to finance the capital
expenditures with net cash from operations, existing cash balances and
borrowings under the Credit Facility. No assurance can be given as to the
availability of such net cash from operations or borrowings, or as to the
availability or terms of any operating leases, and if such funds and leases are
not available, the Company could be required to curtail the construction of the
new facilities. There can be
51
<PAGE> 53
no assurance that the Company will not encounter unforeseen difficulties, costs
or delays in developing, constructing and equipping the new manufacturing
facilities, and there can be no assurance as to when it will complete
construction. Any such difficulties or delays could have a material adverse
effect on the Company's business, financial condition and results of operations.
The development and construction of the new facilities are subject to
significant risks and uncertainties, including cost estimation errors and
overruns, construction delays, weather problems, equipment delays or shortages,
labor shortages and disputes, production start-up problems and other factors. As
many of such factors are beyond the Company's control, the Company cannot
predict the length of any such delays, which could be substantial and could
result in substantial cost overruns. Such delays would adversely affect the
Company's sales growth and the Company's ability to timely meet delivery
schedules. Furthermore, the Company's development and construction of the new
facilities will result in new fixed and operating expenses, including
substantial increases in depreciation expense and rental expense that will
increase the Company's cost of sales. If revenue levels do not increase
sufficiently to offset these new expenses, the Company's operating results could
be materially adversely affected.
52
<PAGE> 54
MANAGEMENT
DIRECTORS AND OFFICERS
The names, ages and positions of the Company's Directors and officers as of
January 31, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------- --- ------------------------------------------------
<S> <C> <C>
Michael E. Marks 47 Chief Executive Officer and Director
Tsui Sung Lam 48 President, Asia Pacific Operations and Director
Robert R. B. 48 Senior Vice President of Finance and
Dykes Administration
Ronny Nilsson 49 Senior Vice President, Europe
Michael McNamara 40 Vice President, President North American
Operations
Stephen J. L. 36 Senior Vice President, Worldwide Sales and
Rees Marketing and Director
Michael J. Moritz 47 Director
Richard L. Sharp 50 Director
Patrick Foley 65 Director
Alain Ahkong 50 Director
Shing Leong Hui 39 Director
</TABLE>
Michael E. Marks -- Mr. Marks has been the Company's Chief Executive
Officer since January 1994 and its Chairman of the Board since July 1993. He has
been a Director of the Company since December 1991. From November 1990 to
December 1993, Mr. Marks was President and Chief Executive Officer of Metcal,
Inc., a precision heating instrument company ("Metcal"). Mr. Marks received a
B.A. and M.A. from Oberlin College and an M.B.A. from the Harvard Business
School.
Tsui Sung Lam -- Mr. Tsui has been the Company's President, Asia-Pacific
since April 1997, and a Director since 1991. From January 1994 to April 1997, he
served as the Company's President and Chief Operating Officer. From June 1990 to
December 1993, he was the Company's Managing Director and Chief Executive
Officer. From 1982 to June 1990, Mr. Tsui served in various positions for
Flextronics, Inc., the Company's predecessor, including Vice President of Asian
Operations. Mr. Tsui received Diplomas in Production Engineering and Management
Studies from Hong Kong Polytechnic, and a Certificate in Industrial Engineering
from Hong Kong University.
Robert R. B. Dykes -- Mr. Dykes served as a Director of the Company from
January 1994 until August 1997 and since February 1997 he has served as its
Senior Vice President of Finance and Administration. Mr. Dykes was Executive
Vice President, Worldwide Operations and Chief Financial Officer of Symantec
Corporation, an application and system software products company, from 1988 to
February 1997. Mr. Dykes received a Bachelor of Commerce and Administration
degree from Victoria University in Wellington, New Zealand. Mr. Dykes is on the
board of directors of Symantec Corporation.
Ronny Nilsson -- Mr. Nilsson has served as the Company's Senior Vice
President, Europe since April 1997. From May 1995 to April 1997, he was Vice
President and General Manager, Supply & Distribution and Vice President,
Procurement, of Ericsson Business Networks where he was responsible for
facilities in Sweden, Austria, China, the Netherlands, Mexico and Australia.
From January 1991 to May 1995, he was Director of Production at the EVOX+RIFA
Group, a manufacturer of components, and Vice President of RIFA AB where he was
responsible for factories in Sweden, Finland, Singapore and Indonesia. Mr.
Nilsson received a certificate in Mechanical Engineering from the Lars Kagg
School in Kalmar, Sweden and certificates from the Swedish Management Institute
and the Ericsson Management Program.
Michael McNamara -- Mr. McNamara has served as Vice President, President
North American Operations since April 1994. From May 1993 to March 1994, he was
President and Chief Executive Officer of Relevant Industries, Inc., which was
acquired by the Company in March 1994. From May 1992 to May 1993, he was Vice
President, Manufacturing Operations at Anthem Electronics, an electronics
distributor. From
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<PAGE> 55
April 1987 to May 1992, he was a Principal of Pittiglo, Rabin, Todd & McGrath,
an operations consulting firm. Mr. McNamara received a B.S. from the University
of Cincinnati and an M.B.A. from Santa Clara University.
Stephen J. L. Rees -- Mr. Rees has served as a Director of the Company
since April 1996, as Senior Vice President, Worldwide Sales and Marketing since
May 1997, and as Chairman and Chief Executive Officer of Astron since the
acquisition of Astron by the Company in February 1996. Mr. Rees has been
Chairman and Chief Executive Officer of Astron since November 1991. Mr. Rees
holds a B.A. in Finance from the City of London Business School and graduated in
Production Technology and Mechanical Engineering from the HTL St. Polten
Technical Institute in Austria.
Michael J. Moritz -- Mr. Moritz has served as a Director of the Company
since July 1993. Mr. Moritz has been a General Partner of Sequoia Capital, a
venture capital firm, since 1988. Mr. Moritz also serves as director of Yahoo,
Inc., Neomagic and several privately-held companies.
Richard L. Sharp -- Mr. Sharp has served as a Director of the Company since
July 1993. He is Chairman of the Board and Chief Executive Officer of Circuit
City Stores, Inc., a consumer electronics and appliance retailer. He joined
Circuit City as an Executive Vice President in 1982. He was President from June
1984 to March 1997 and became Chief Executive Officer in 1986 and Chairman of
the Board in 1994. Mr. Sharp also serves as a director of Fort James
Corporation.
Patrick Foley -- Mr. Foley has been a Director of the Company since October
1997. Mr. Foley is Chairman, President and Chief Executive Officer of DHL
Corporation, Inc. and its major subsidiary, DHL Airways, Inc., a global
document, package and airfreight delivery company. He joined DHL in September
1988 with more than 30 years experience in hotel and airline industries. Mr.
Foley also serves as a director of Continental Airlines, Inc., Del Monte
Corporation, DHL International, Foundation Health Systems, Inc. and Glenborough
Realty Trust, Inc.
Alain Ahkong -- Mr. Ahkong has served as a Director of the Company since
October 1997. Mr. Ahkong is a founder of Pioneer Management Services Pte. Ltd.
("Pioneer"), a Singapore-based consultancy firm, and has been the Managing
Director of Pioneer since 1990. Pioneer provides advice to the Company, and
other multinational corporations, on matters related to international taxation.
Shing Leong Hui -- Mr. Hui has served as a Director of the Company since
October 1997. Since 1996 he has been Managing Director of CS Hui Holdings in
Malaysia. Between 1984 and 1994 he was Managing Director of Samda Plastics
Industries Ltd., a plastic injection molding company in Malaysia. Since 1994 Mr.
S.L. Hui has also been a committee member of the Penang, Malaysia Industrial
Council, Vice-Chairman of the SMI Center in Malaysia, and Chairman of the
Sub-Committee Plastics Technology Training Center in Malaysia. Since 1990 he has
been President of the North Malaysian Small and Medium Enterprises Association.
54
<PAGE> 56
EXECUTIVE COMPENSATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth information concerning the compensation paid
or accrued by the Company for services rendered during fiscal 1997, 1996 and
1995 by the Chief Executive Officer and each of the four most highly compensated
executive officers as of March 31, 1997 whose total salary and bonus for fiscal
1997 exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------- SECURITIES
NAME AND PRINCIPAL FISCAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS COMPENSATION OPTIONS COMPENSATION
- ------------------------ ------ -------- -------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Marks........ 1997 $300,000 $ 80,400 $234,052(1) 250,000 $ 8,351(2)
Chairman of the Board 1996 $275,000 $132,500 -- 150,000 $ 10,209(3)
and Chief Executive 1995 $250,000 $ 45,750 -- 25,000 $ 9,170(4)
Officer
Tsui Sung Lam........... 1997 $256,791 $ 87,180 -- 20,000 $ 28,757(5)
President, 1996 $249,176 $143,313 -- 40,000 $ 39,988(6)
Asia-Pacific
Operations 1995 $216,028 $ 67,533 -- -- $ 18,288(7)
Michael McNamara........ 1997 $199,999 $ 30,642 $ 5,337(8) 21,000 $ 3,958(9)
Vice President, 1996 $173,250 $ 53,626 -- 15,000 --
President
of U.S. Operations 1995 $165,000 $ 15,468 -- -- --
Dennis Stradford(10).... 1997 $191,100 $ 33,634 -- -- $ 8,290(11)
Senior Vice President, 1996 $191,100 $ 65,066 -- 13,000 $ 9,419(12)
Sales and Marketing 1995 $182,000 $ 45,018 -- -- $ 8,800(13)
Goh Chan Peng(14)....... 1997 $174,283 $ 44,870 -- 16,000 $ 24,449(15)
Senior Vice President of 1996 $163,718 $ 65,976 -- 15,000 $ 24,217(16)
Finance and 1995 $134,193 $ 49,544 -- -- $ 14,122(17)
Operations,
Asia-Pacific
</TABLE>
- ---------------
(1) Includes an auto allowance of $7,712, forgiveness of a promissory note due
to a subsidiary of the Company of $200,000 and forgiveness of interest
payment of $26,340 on the promissory note payable to a subsidiary of the
Company.
(2) Includes Company contributions to the Company's 401(k) plan of $4,750 and
life and disability insurance premium payments of $3,601.
(3) Includes Company contributions to the Company's 401(k) plan of $4,370 and
life and disability insurance premium payments of $5,839.
(4) Includes Company contributions to the Company's 401(k) plan of $4,520 and
life insurance premium payments of $4,650.
(5) Includes life insurance payments of $736 and Company contributions to the
Central Provident Fund of $28,021. The Central Provident Fund is a
Singapore statutory savings plan to which contributions may be made to
provide for employees' retirement.
(6) Includes life insurance payments of $736 and Company contributions to the
Central Provident Fund of $39,252.
(7) Includes life insurance premium payments of $671 and Company contributions
to the Central Provident Fund of $17,617.
(8) Represents forgiveness of interest payment due on a promissory note payable
to a subsidiary of the Company.
(9) Represents Company contributions to the Company's 401(k) plan.
(10) Mr. Stradford was the Company's Vice President, Sales and Marketing through
April 1997. Mr. Stradford is now responsible for sales in Europe and is no
longer deemed an executive officer of the Company.
(11) Includes Company contributions to the Company's 401(k) plan of $4,750 and
life insurance premium payments of $3,540.
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<PAGE> 57
(12) Includes Company contributions to the Company's 401(k) plan of $3,832 and
life insurance premium payments of $5,587.
(13) Includes Company contributions to the Company's 401(k) plan of $5,460 and
life insurance premium payments of $3,340.
(14) Mr. Goh was the Company's Chief Financial Officer for fiscal 1997. Mr. Goh
is no longer deemed an executive officer of the Company.
(15) Includes life insurance payments of $736 and Company contributions to the
Central Provident Fund of $23,713.
(16) Includes life insurance premium payments of $736 and Company contributions
to the Central Provident Fund of $23,481.
(17) Includes life insurance premium payments of $671 and Company contributions
to the Central Provident Fund of $13,451.
OPTION GRANT TABLE
The following table sets forth information regarding option grants during
fiscal 1997 to each of the Named Executive Officers. All options were granted
pursuant to the Company's 1993 Share Option Plan. In accordance with the rules
of the Securities and Exchange Commission, the table sets forth the hypothetical
gains or "option spreads" that would exist for the options at the end of their
respective five-year terms. These gains are based on assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted to the end of the option term.
OPTION GRANTS IN FISCAL 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE
PERCENTAGE AT ASSUMED ANNUAL RATES
NUMBER OF OF TOTAL OF STOCK PRICE
SECURITIES OPTIONS APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS EMPLOYEES PRICE PER EXPIRATION -----------------------
NAME GRANTED(1) IN 1997 SHARE(2) DATE 5% 10%
- ------------------------------- ----------- ----------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Marks............... 250,000 34.7% $ 23.125 11/08/01 $1,597,244 $3,529,511
Tsui Sung Lam.................. 20,000 2.8% $ 23.125 11/08/01 127,780 282,361
Michael McNamara............... 1,000 0.1% $ 19.75 08/27/01 5,457 12,058
20,000 2.1% $ 23.125 11/08/01 127,780 282,361
Dennis P. Stradford............ -- -- -- -- -- --
Goh Chan Peng.................. 1,000 0.1% $ 19.75 08/27/01 5,457 12,058
15,000 2.1% $ 23.125 11/08/01 95,835 211,771
</TABLE>
- ---------------
(1) The options shown in the table were granted at fair market value, are
incentive stock options and will expire five years from the date of grant,
subject to earlier termination upon termination of the optionee's
employment. The options become exercisable over a four-year period, with 25%
of the shares vesting on the first anniversary of the date of grant and
1/36th of the shares vesting for each full calendar month that an optionee
renders services to the Company thereafter. All of the options shown in the
table will become immediately exercisable for all of the option shares in
the event the Company is acquired by merger or sale of substantially all of
the Company's assets or outstanding Ordinary Shares, unless the options are
assumed or otherwise replaced by the acquiring entity. The Compensation
Committee has authority to provide for the acceleration of each option in
connection with certain hostile tender offers or proxy contests for Board
membership. Each option includes a limited stock appreciation right pursuant
to which the option will automatically be canceled upon the occurrence of
certain hostile tender offers, in return for a cash distribution from the
Company based on the tender offer price per share. In the case of Messrs.
Tsui and Goh, all of the options shown in the table will become immediately
exercisable in the event of termination of employment for any reason.
(2) The exercise price of the option may be paid in cash or through a cashless
exercise procedure involving a same-day sale of the purchased shares.
(3) Amounts represent hypothetical gains that could be achieved for the
respective options if exercised at the end of the option term. The assumed
5% and 10% rates of share price appreciation are mandated by rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of future Ordinary Share prices.
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<PAGE> 58
YEAR-END OPTION TABLE
The following table sets forth certain information concerning the exercise
of options by each of the Named Executive Officers during fiscal 1997, including
the aggregate amount of gains on the date of exercise. In addition, the table
includes the number of shares covered by both exercisable and unexercisable
stock options as of March 31, 1997. Also reported are values of "in-the-money"
options that represent the positive spread between the respective exercise
prices of outstanding stock options and $19.875 per share, which was the closing
price of the Company's Ordinary Shares as reported on the Nasdaq National Market
on March 31, 1997, the last day of trading for fiscal 1997.
AGGREGATED OPTION EXERCISES IN FISCAL 1997 AND YEAR-END VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES FISCAL YEAR-END(2) FISCAL YEAR-END(2)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE(1) REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Michael E. Marks............ 10,000 286,700 132,002 349,998 1,196,977 692,213
Tsui Sung Lam............... 10,000 310,800 63,355 43,645 830,253 150,482
Michael McNamara............ -- -- 30,418 35,582 403,468 114,257
Dennis P. Stradford......... 16,000 416,648 6,105 6,895 44,970 52,915
Goh Chan Peng............... -- -- 35,230 27,770 502,256 70,529
</TABLE>
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(1) "Value Realized" represents the fair market value of the Company's Ordinary
Shares underlying the option on the date of exercise less the aggregate
exercise price of the option.
(2) These values, unlike the amounts set forth in the column entitled "Value
Realized," have not been, and may never be, realized and are based on the
positive spread between the respective exercise prices of outstanding
options and the closing price of the Company's Ordinary Shares on March 31,
1997, the last day of trading for fiscal 1997.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during fiscal 1997 were Mr. Dykes
and Mr. Sharp. Mr. Dykes resigned his position on the Compensation Committee
upon becoming an officer of the Company in February 1997. The current members of
the Compensation Committee are Mr. Sharp and Mr. Moritz. No officers of the
Company serve on the Compensation Committee.
EMPLOYMENT AND CONSULTING AGREEMENTS
In July 1993, the Company entered into employment agreements with Messrs.
Tsui and Goh. Under these agreements, Messrs. Tsui and Goh were entitled to
receive an annual salary (in Singapore dollars) of S$344,539 and S$207,103,
respectively. In April 1997, the Compensation Committee increased the base
salaries (in Singapore dollars) of Messrs. Tsui and Goh to S$429,000 and
S$304,499, respectively. In addition, the Company entered into revised
employment agreements with Messrs. Tsui and Goh as President, Asia Pacific
Operations and Senior Vice President of Finance and Operations, Asia Pacific,
respectively, effective April 1, 1997. Pursuant to the new employment
agreements, the employment of Messrs. Tsui and Goh will continue until either
the Company or the employee gives the other 12 months' notice of termination (or
pays the other 12 months' base salary in lieu of notice). The Company is
required to pay one month's salary for each year of employment by Messrs. Tsui
and Goh upon termination of their respective employment by the Company. The
Company also agreed that upon termination of employment of Messrs. Tsui or Goh
by the Company for any reason, any options to purchase Ordinary Shares then held
by them would immediately vest and become exercisable for all of the shares
subject to such option.
In connection with the Company's acquisition of Astron, Astron Technologies
Limited, a subsidiary of the Company ("ATL"), entered into a Services Agreement
(the "Services Agreement") with Croton Technology Ltd., a company under the
management and control of Mr. Rees ("Croton"), and Astron entered into a
Supplemental Services Agreement (the "Supplemental Services Agreement") with Mr.
Rees. Under
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<PAGE> 59
the terms of the Services Agreement, Mr. Rees acted as President of ATL, and
Croton was responsible for developing the business of ATL through June 1998. The
Services Agreement provided that Croton will receive (i) a payment of $15.0
million on June 30, 1998, $5.0 million of which was to be payable in cash and
$10.0 million of which was to be payable in cash or the Ordinary Shares of the
Company at the option of the Company and (ii) an annual fee in the amount of
$90,000. Payment of the $15.0 million lump sum payment was conditioned upon,
among other things, Mr. Rees' continuing as Chairman of Astron through June
1998. The Services Agreement was to terminate on June 30, 1998 but may be
terminated for cause under the terms described therein. Pursuant to the terms of
the Supplemental Services Agreement, Mr. Rees acted as Chairman of Astron and
was responsible for maintaining and developing the business of Astron, and, in
exchange, received an annual salary of $140,000. The Supplemental Services
Agreement was to terminate on June 30, 1998.
Effective March 27, 1997, the Company revised the Services Agreement and
the Supplemental Services Agreement, and appointed Mr. Rees as the Company's
Senior Vice President - Worldwide Sales and Marketing. In connection with this
revision, the amount of the payment due on June 30, 1998 was reduced from $15.0
million to $14.0 million and the remaining conditions to the Company's payment
of the fee were removed. Of the $14.0 million, $5.0 million remains payable in
cash, and $9.0 million remains payable in cash or, at the option of the Company,
in Ordinary Shares. This reduction was negotiated in view of (i) a negotiated
settlement in March 1997 of the amount of the earnout payable by the Company to
the former shareholders of Astron in which the Company agreed to certain
matters, previously in dispute affecting the amount of the earnout payment, and
(ii) the elimination of the conditions to payment and of Mr. Rees' ongoing
obligations under the Services Agreement and the Supplemental Services
Agreement.
In connection with the acquisition of two manufacturing facilities from
Ericsson Business Networks AB located in Karlskrona, Sweden, the Company and Mr.
Ronny Nilsson entered into an Employment and Noncompetition Agreement
("Employment Agreement") and a Services Agreement (the "Nilsson Services
Agreement"), both dated as of April 30, 1997. Pursuant to the Employment
Agreement, Mr. Nilsson (a) was appointed as the Company's Senior Vice President,
Europe for a four-year period, (b) receives an annual salary of $250,000, and
(c) is entitled to a bonus of up to 45% of his annual salary upon the successful
completion of certain performance criteria. Pursuant to the Nilsson Services
Agreement, Mr. Nilsson is to perform management consultation and guidance
services to the Company in consideration of (a) an aggregate of $775,000 to be
paid between March 31, 1997 and April 15, 1998, and (b) the issuance by the
Company to Mr. Nilsson of an interest-free loan in the amount of $415,000 to be
repaid by Mr. Nilsson in two installments of $210,000 and $205,000 on September
15, 1997 and April 15, 1998, respectively.
On November 6, 1997, the Company's U.S. subsidiary loaned $1.5 million to
Mr. Marks, the Chairman of the Board and Chief Executive Officer of the Company.
Mr. Marks executed a promissory note in favor of Flextronics International USA,
Inc. which bears interest at a rate of 7.25% and matures on November 6, 1998.
This loan is secured by certain assets owned by Mr. Marks.
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<PAGE> 60
DESCRIPTION OF THE CREDIT FACILITY
The Credit Facility was established on March 27, 1997 and, subject to
compliance with certain financial covenants and the satisfaction of customary
borrowing conditions, provides for revolving credit borrowings by the Company
and Flextronics International USA, Inc., a California corporation and a
wholly-owned subsidiary of the Company (the "United States Subsidiary") of an
aggregate of $105.0 million. BankBoston, N.A. (the "Bank") is the lead agent and
a lender under the Credit Facility. In January 1998, the Credit Facility was
amended to, among other things, (i) eliminate the term loan facility; (ii)
reduce the commitment fees and interest rate payable under the facility; (iii)
provide for loans directly to certain of the Company's subsidiaries; and (iv)
provide for loans in foreign currencies.
The Credit Facility consists of two separate credit agreements, one
providing for up to $85.0 million principal amount of revolving credit loans to
the Company and designated subsidiaries and one providing for up to $20.0
million principal amount of revolving credit loans to the Company's United
States subsidiary. Loans under the Credit Facility will mature in March 2000.
The Company anticipates that it will from time to time borrow revolving credit
loans to fund its operations and growth.
Loans to the Company are guaranteed by certain of its subsidiaries and
loans to the Company's United States Subsidiary are guaranteed by the Company
and by certain of the Company's subsidiaries. The Credit Facility is secured by
a lien on substantially all accounts receivable and inventory of the Company and
its subsidiaries, as well as a pledge of the Company's shares in certain of its
subsidiaries. Loans under the Credit Facility bear interest at the lender's base
rate or eurocurrency rate, plus an applicable margin which depends on the
Company's consolidated Leverage Ratio (the ratio of Total Funded Indebtedness to
EBITDA (each as defined therein)). The Credit Facility further provides for the
payment by the Company of a commitment fee on the available and unused portion
of the credit line and certain other fees.
The Credit Facility contains covenants and provisions that, among other
things, prohibit the Company and its subsidiaries from (i) incurring additional
indebtedness, subject to certain exceptions such as subordinated debt (as
defined therein), certain unsecured debt, purchase money debt not to exceed
$25.0 million and capitalized leases; (ii) incurring liens on their property
(subject to certain exceptions); (iii) engaging in certain dispositions of
assets; (iv) making acquisitions that do not meet certain criteria; and (v)
making certain other investments. In addition, the Credit Facility prohibits the
payment of dividends by the Company.
The Credit Facility also requires that the Company satisfy certain
financial covenants on a consolidated basis that, among other things, provide
that the Company's: (i) Leverage Ratio must not exceed 3.5 : 1.00, (ii) Interest
Coverage Ratio (the ratio of EBITDA to consolidated total interest expense) must
not be less than 3.25 : 1, (iii) consolidated tangible net worth must not be
less than the sum of (a) 95% of consolidated tangible net worth at September 30,
1997 plus (b) on a cumulative basis, 75% of positive net income for each fiscal
year subsequent to the fiscal year ended 1997, plus (c) 100% of the proceeds of
any equity issuance. The Company was in compliance with these financial
covenants as of December 31, 1997.
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<PAGE> 61
THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
The Old Notes were sold by the Company on October 15, 1997 to the Initial
Purchasers pursuant to a Purchase Agreement dated October 9, 1997 by and among
the Company and the Initial Purchasers. Upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, the Company will accept for exchange any and all Old Notes that are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration Date" means 5:00 p.m., New
York City time, on April 1, 1998; provided, however, that if the Company, in its
sole discretion, has extended the period of time for which the Exchange Offer is
open, the term "Expiration Date" means the latest time and date to which the
Exchange Offer is extended.
As of the date of this Prospectus, $150,000,000 aggregate principal amount
of the Old Notes was outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about the date set forth on the cover
page to all holders of Old Notes at the addresses set forth in the security
register with respect to Old Notes maintained by the State Street Bank and Trust
Company of California, N.A. (the "Trustee"). The Company's obligation to accept
Old Notes for exchange pursuant to the Exchange Offer is subject to certain
conditions as set forth under "-- Certain Conditions to the Exchange Offer"
below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for exchange of any Old Notes, by mailing written
notice of such extension to the holders thereof as described below. During any
extension, all Old Notes previously tendered will remain subject to the Exchange
Offer and may be accepted for exchange by the Company. Any Old Notes not
accepted for exchange for any reason will be returned without expense to the
tendering holder thereof as promptly as practicable after the expiration or
termination of the Exchange Offer.
Old Notes tendered in the Exchange Offer must be $1,000 in principal amount
or any integral multiple thereof.
The Company will mail written notice of any extension, amendment,
non-acceptance or termination to the holders of the Old Notes as promptly as
practicable, such notice to be mailed to the holders of record of the Old Notes
no later than 9:00 a.m. New York City time, on the next business day after the
previously scheduled Expiration Date or other event giving rise to such notice
requirement.
REGISTRATION RIGHTS; ADDITIONAL INTEREST
Pursuant to the Registration Rights Agreement, the Company has agreed with
the Initial Purchasers, for the benefit of the holders of the Old Notes, that
the Company will, at its cost, (i) not later than 45 days after the closing of
the sale of the Old Notes (the "Closing Date"), file the Registration Statement
with the Commission and (ii) cause the Registration Statement to be declared
effective under the Securities Act not later than 135 days after the Closing
Date. The Registration Statement of which this Prospectus is a part constitutes
the Registration Statement.
If applicable interpretations of the staff of the Commission do not permit
the Company to effect the Exchange Offer, or if for any reason the Exchange
Offer is not completed within 165 days after the Closing Date, or if the Initial
Purchasers so request with respect to Old Notes not eligible to be exchanged for
New Notes in the Exchange Offer, or if any holder of Old Notes is not eligible
to participate in the Exchange Offer or participates in but does not receive
freely tradeable (except for prospectus delivery requirements) New Notes in the
Exchange Offer, the Company will, at its cost, (a) as promptly as practicable,
file a Shelf Registration Statement covering resales of the Notes, (b) use its
reasonable efforts to cause the Shelf Registration Statement to be declared
effective under the Securities Act and (c) keep the Shelf Registration Statement
effective until two years after its effective date (or shorter period that will
terminate when all Notes covered by the Shelf Registration Statement have been
sold pursuant to the Shelf Registration Statement). The Company will, in the
event a Shelf Registration Statement is filed, among other things, provide to
each
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<PAGE> 62
holder for whom such Shelf Registration Statement was filed copies of the
prospectus which is part of the Shelf Registration Statement, notify each such
holder when the Shelf Registration Statement has become effective and take
certain other actions as are required to permit unrestricted resales of the
Notes. A holder selling such Notes pursuant to the Shelf Registration Statement
generally would be required to be named as a selling security holder in the
related prospectus and to deliver a prospectus to purchasers, will be subject to
certain of the civil liability provisions under the Securities Act in connection
with such sales and will be bound by the provisions of the Registration Rights
Agreement that are applicable to such holder (including certain indemnification
obligations).
If (i) the Exchange Offer Registration Statement is not filed with the
Commission on or prior to the 45th day following the date of original issue of
the Notes, (ii) the Exchange Offer Registration Statement is not declared
effective on or prior to the 135th day following the date of original issue of
the Notes, (iii) neither the Exchange Offer is consummated nor the Shelf
Registration Statement is declared effective on or prior to the 165th day
following the date of the original issue of the Notes, or (iv) a Shelf
Registration Statement is required to be filed because of the request of the
Initial Purchasers or other specified Holder, 45 days following the request by
the Initial Purchasers that the Company file the Shelf Registration Statement
(or 90 days if the Shelf Registration Statement is reviewed by the Commission),
then the interest rate borne by the Notes (except in the case of clause (iv), in
which case only the Notes which have not been exchanged in the Exchange Offer)
shall be increased by one-quarter of one percent per annum, which rate (as
increased as aforesaid) will increase by one quarter of one percent each 90-day
period that such additional interest continues to accrue under any such
circumstance, with an aggregate maximum increase in the interest rate equal to
one percent per annum. Upon (w) the filing of the Exchange Offer Registration
Statement in the case of clause (i) above, (x) the effectiveness of the Exchange
Offer Registration Statement in the case of clause (ii) above, (y) the date of
the consummation of the Exchange Offer or the effectiveness of the Shelf
Registration Statement in the case of clause (iii) above, or (z) the
effectiveness of the Shelf Registration Statement, in the case of clause (iv)
above, the interest rate on the Notes from the date of such filing,
effectiveness or the date of such consummation or effectiveness, as the case may
be, will be reduced to the original interest rate set forth on the cover of this
Prospectus; provided, however, that, if after any such reduction in interest
rate, a different event specified in clause (i), (ii), (iii) or (iv) above
occurs, the interest rate shall again be increased pursuant to the foregoing
provisions.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all provisions of the Registration Rights
Agreement, a copy of which is filed as an exhibit to the Registration Statement
of which this Prospectus constitutes a part.
PROCEDURE FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to tender
Old Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, together with all other
documents required by such Letter of Transmittal, to State Street Bank and Trust
Company of California, N.A. (the "Exchange Agent") at the address set forth
below under "-- Exchange Agent" on or prior to the Expiration Date. In addition,
(i) certificates for the Old Notes must be received by the Exchange Agent along
with the Letter of Transmittal or (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of the Old Notes, if such procedure is
available, into the Exchange Agent's account at The Depository Trust Company
(the "Book-Entry Transfer Facility") pursuant to the procedure for book-entry
transfer described below, must be received by the Exchange Agent prior to the
Expiration Date or (iii) the holder must comply with the guaranteed delivery
procedures described below. THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF
TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE
HOLDERS. IF THE DELIVERY IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED, BE USED IN ALL CASES.
SUFFICIENT TIME SHOULD BE
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ALLOWED TO ASSURE TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD
BE SENT TO THE COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by a registered holder of the Old Notes who
has not completed the box entitled "Special Issuance Instructions" or "Special
Delivery Instructions" on the Letter of Transmittal or (ii) for the account of
an Eligible Institution (as defined herein). If signatures on a Letter of
Transmittal or a notice of withdrawal, as the case may be, are required to be
guaranteed, the guarantees must be by a firm that is an eligible guarantor
institution (bank, stockbroker, national securities exchange, registered
securities association, savings and loan association or credit union with
membership in a signature medallion program) pursuant to Exchange Act Rule
17Ad-15 (collectively, "Eligible Institutions"). If Old Notes are registered in
the name of a person other than the person signing the Letter of Transmittal,
the Old Notes surrendered for exchange must be endorsed by, or be accompanied by
a written instrument or instruments of transfer or exchange, in satisfactory
form as determined by the Company in its sole discretion, duly executed by the
registered holder, with the signature thereon guaranteed by an Eligible
Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or not to accept any
particular Old Notes if acceptance might, in the judgment of the Company or its
counsel, be unlawful. The Company also reserves the absolute right in its sole
discretion to waive any defects or irregularities or conditions of the Exchange
Offer as to any particular Old Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Old Notes in the Exchange Offer). The interpretation of the terms and
conditions of the Exchange Offer as to any particular Old Notes either before or
after the Expiration Date (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of Old
Notes for exchange must be cured within a reasonable period of time that the
Company shall determine. Neither the Company, the Exchange Agent nor any other
person shall be under any duty to give notification of any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give any notification.
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Old Notes, the Old Notes must be endorsed or
accompanied by appropriate powers of attorney, in either case signed exactly as
the name or names of the registered holder or holders that appear on the Old
Notes. If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, proper evidence satisfactory to the Company of their authority to so
act must be submitted with the Letter of Transmittal.
By tendering Old Notes, each holder, other than a broker-dealer, must
acknowledge that it is not engaged in, and does not intend to engage in, a
distribution of New Notes. If any holder of Old Notes is an "affiliate" of the
Company, as defined under Rule 405 of the Securities Act, or is engaged in or
intends to engage in or has any arrangement with any person to participate in
the distribution of the New Notes to be acquired pursuant to the Exchange Offer,
the holder (i) could not rely on the applicable interpretations of the staff of
the Commission and (ii) must comply with the registration and prospectus
delivery requirements of the Securities Act in connection with any resale
transaction. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
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<PAGE> 64
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
The Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. For each Old Note accepted for exchange, the holder of the Old Note
will receive a New Note having a principal amount equal to that of the
surrendered Old Note. The New Notes will bear interest from the most recent date
to which interest has been paid on the Old Notes or, if no interest has been
paid on the Old Notes, from October 15, 1997. Accordingly, if the relevant
record date for interest payment occurs after the completion of the Exchange
Offer, registered holders of New Notes on the record date will receive interest
accruing from the most recent date to which interest has been paid or, if no
interest has been paid, from October 15, 1997. If, however, the relevant record
date for interest payment occurs prior to the completion of the Exchange Offer,
registered holders of Old Notes on the record date will receive interest
accruing from the most recent date to which interest has been paid or, if no
interest has been paid, from October 15, 1997. Old Notes accepted for exchange
will cease to accrue interest from and after the date of completion of the
Exchange Offer, except as set forth in the immediately preceding sentence.
Holders of Old Notes whose Old Notes are accepted for exchange will not receive
any payment in respect of interest on the Old Notes otherwise payable on any
interest payment date the record date for which occurs on or after completion of
the Exchange Offer.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of (i) certificates for the Old Notes or a timely
Book-Entry Confirmation of the Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility, (ii) a properly completed and duly executed
Letter of Transmittal and (iii) all other required documents. If any tendered
Old Notes are not accepted for any reason set forth in the terms and conditions
of the Exchange Offer or if certificates representing Old Notes are submitted
for a greater principal amount than the holder desires to exchange, certificates
representing the unaccepted or non-exchanged Old Notes will be returned without
expense to the tendering holder thereof (or, in the case of Old Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
below, the non-exchanged Old Notes will be credited to an account maintained
with the Book-Entry Transfer Facility) as promptly as practicable after the
expiration or termination of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Old Notes at the Book-Entry Transfer Facility for purposes of the
Exchange Offer within two business days after the date of this Prospectus, and
any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer the Old Notes into the Exchange Agent's
account at the Book-Entry Transfer Facility in accordance with the Book-Entry
Facility's procedures for transfer. ALTHOUGH DELIVERY OF OLD NOTES MAY BE
EFFECTED THROUGH BOOK-ENTRY TRANSFER AT THE BOOK-ENTRY TRANSFER FACILITY, THE
LETTER OF TRANSMITTAL OR A FACSIMILE THEREOF, WITH ANY REQUIRED SIGNATURE
GUARANTEES AND ANY OTHER REQUIRED DOCUMENTS, MUST, IN ANY CASE, BE TRANSMITTED
TO AND RECEIVED BY THE EXCHANGE AGENT AT THE ADDRESS SET FORTH BELOW UNDER
"EXCHANGE AGENT" ON OR PRIOR TO THE EXPIRATION DATE OR THE GUARANTEED DELIVERY
PROCEDURES DESCRIBED BELOW MUST BE COMPLIED WITH.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of Old Notes desires to tender the Old Notes and the
Old Notes are not immediately available, or time will not permit the holder's
Old Notes or other required documents to reach the Exchange Agent before the
Expiration Date, or the procedure for book-entry transfer cannot be completed on
a timely basis, a tender may be effected if (i) the tender is made through an
Eligible Institution, (ii) prior to the Expiration Date, the Exchange Agent
receives from the Eligible Institution a properly completed and duly executed
Letter of Transmittal (or a facsimile thereof) and Notice of Guaranteed
Delivery, substantially in
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<PAGE> 65
the form provided by the Company (by telegram, telex, facsimile transmission,
mail or hand delivery), setting forth the name and address of the holder of Old
Notes and the amount of Old Notes tendered, stating that the tender is being
made thereby and guaranteeing that within five New York Stock Exchange ("NYSE")
trading days after the date of execution of the Notice of Guaranteed Delivery,
the certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent and (iii) the certificates for all
physically tendered Old Notes, in proper form for transfer, or a Book-Entry
Confirmation, as the case may be, and all other documents required by the Letter
of Transmittal, are received by the Exchange Agent within five NYSE trading days
after the date of execution of the Notice of Guaranteed Delivery.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., April
1, 1998, New York City time, on the Expiration Date.
For a withdrawal to be effective, a written or facsimile notice of
withdrawal must be received by the Exchange Agent at the address set forth below
under "-- Exchange Agent." Any notice of withdrawal must specify the name of the
person having tendered the Old Notes to be withdrawn, identify the Old Notes to
be withdrawn (including the principal amounts of such Old Notes), and (where
certificates for Old Notes have been transmitted) specify the name in which such
Old Notes are registered, if different from that of the withdrawing holder. If
certificates for Old Notes have been delivered or otherwise identified to the
Exchange Agent, then, prior to the release of such certificates, the withdrawing
holder must also submit the serial numbers of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless the holder is an Eligible Institution. If Old Notes
have been tendered pursuant to the procedure for book-entry transfer described
above, any notice of withdrawal must specify the name and number of the account
at the Book-Entry Transfer Facility to be credited with the withdrawn Old Notes
and otherwise comply with the procedures of the facility. All questions as to
the validity, form and eligibility (including time of receipt) of the notices
will be determined by the Company, whose determination shall be final and
binding on all parties. Certificates for any Old Notes so withdrawn will be
deemed not to have been validly tendered for exchange for purposes of the
Exchange Offer. Any Old Notes that have been tendered for exchange but which are
not exchanged for any reason will be returned to the holder thereof without cost
to the holder (or, in the case of Old Notes tendered by book-entry transfer into
the Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, the Old Notes will be credited
to an account maintained with the Book-Entry Transfer Facility for the Old
Notes) as soon as practicable after withdrawal, rejection of tender or
termination of the Exchange Offer. Properly withdrawn Old Notes may be
retendered by following one of the procedures described under "-- Procedure for
Tendering Old Notes" above at any time on or prior to the Expiration Date.
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EXCHANGE AGENT
State Street Bank and Trust Company of California, N.A. has been appointed
as the Exchange Agent for the Exchange Offer. All executed Letters of
Transmittal should be directed to the Exchange Agent at the address set forth
below. Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notices of
Guaranteed Delivery should be directed to the Exchange Agent, addressed as
follows:
By Mail or by Hand:
State Street Bank and Trust Company of California, N.A., Exchange
Agent
c/o State Street Bank and Trust Company
2 International Place
Boston, MA 02110
Attn: Corporate Trust Department
By Facsimile:
(617) 664-5290
Confirm Facsimile by Telephone:
(617) 664-5314
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN AS SET FORTH
ABOVE DOES NOT CONSTITUTE A VALID DELIVERY OF THE LETTER OF TRANSMITTAL.
FEES AND EXPENSES
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer tax in connection therewith, except that Holders who instruct
the Company to register New Notes in the name of, or request that Old Notes not
tendered or not accepted in the Exchange Offer be returned to, a person other
than the registered tendering Holder will be responsible for the payment of any
applicable transfer tax thereon.
APPRAISAL RIGHTS
HOLDERS OF OLD NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR APPRAISAL RIGHTS
IN CONNECTION WITH THE EXCHANGE OFFER.
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of the Old Notes. In general, the Old Notes may not be offered or
sold unless registered under the Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the registration requirements of the
Securities Act and applicable state securities laws. The Company does not
anticipate that it will register Old Notes under the Securities Act. Based on
interpretations by the staff of the Commission issued to third parties, New
Notes issued pursuant to the Exchange Offer in exchange for Old Notes may be
offered for resale, resold or otherwise transferred by holders thereof (other
than any holder that is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that the New
Notes are acquired in the ordinary course of the holders' business and the
holders have no arrangement with any person to participate in the distribution
of the New Notes. Each
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holder, other than a broker-dealer, must acknowledge that it is not engaged in,
and does not intend to engage in, a distribution of New Notes. If any holder is
an affiliate of the Company, is engaged in or intends to engage in or has any
arrangement or understanding with respect to the distribution of the New Notes
to be acquired pursuant to the Exchange Offer, the holder (i) could not rely on
the applicable interpretations of the staff of the Commission and (ii) must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each broker-dealer
that receives New Notes for its own account in exchange for Old Notes must
acknowledge that the Old Notes were acquired by the broker-dealer as a result of
market-making activities or other trading activities and that it will deliver a
prospectus in connection with any resale of the New Notes. See "Plan of
Distribution." In addition, to comply with the securities laws of certain
jurisdictions, if applicable, it may be necessary to qualify for sale or to
register the New Notes prior to offering or selling the New Notes. The Company
does not intend to take any action to register or qualify the New Notes for
resale in any of these jurisdictions.
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DESCRIPTION OF THE NOTES
GENERAL
As used below in this "Description of Notes" section, references to the
"Notes" refer to the Old Notes and the New Notes, unless the context otherwise
requires.
The Old Notes were and the New Notes will be issued under an Indenture to
be dated as of October 15, 1997 (the "Indenture") between the Company and State
Street Bank and Trust Company of California, N.A., as trustee (the "Trustee").
The following summary of the material provisions of the Indenture does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, all provisions of the Indenture, a copy of which can be obtained
from the Company upon request. Upon the issuance of the Exchange Notes, if any,
or the effectiveness of the Shelf Registration Statement, the Indenture will be
subject to and governed by the provisions of the Trust Indenture Act of 1939
(the "Trust Indenture Act"). The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions." Wherever
particular sections or defined terms of the Indenture not otherwise defined
herein are referred to, such Sections or defined terms shall be incorporated
herein by reference, and those terms made a part of the Indenture by the Trust
Indenture Act also are incorporated herein by reference.
Unless otherwise specifically indicated, all references in this section to
the "Company" are to Flextronics International Ltd., a Singapore corporation,
and not to any of its Subsidiaries.
TERMS OF NOTES
The Notes, which mature on October 15, 2007, will be limited to
$150,000,000 in aggregate principal amount. The Notes will not be entitled to
any sinking fund. The Notes will be redeemable at the option of the Company as
described below under "-- Redemption."
The Notes will bear interest from the date of issuance at the rate per
annum set forth on the cover page hereof payable semiannually in arrears on
April 15 and October 15 of each year commencing on April 15, 1998 until the
principal thereof is paid or made available for payment to the Holders of record
at the close of business on the next preceding April 1 or October 1,
respectively. Interest will be computed on the basis of a 360-day year comprised
of twelve 30-day months. The circumstances under which the interest rate may
increase from the rate set forth on the cover page hereof are described under
"Exchange Offer; Registration Rights."
Principal of, premium, if any, and interest on the Notes will be payable at
the office or agency of the Trustee maintained for such purpose within the City
and State of New York or, at the option of the Company, payment of interest may
be made by check mailed to the Holders of the Notes at their respective
addresses set forth in the register of Holders of Notes; provided that all
payments of principal of, premium, if any, and interest with respect to Notes
the Holders of which have given wire transfer instructions to the Company will
be required to be made by wire transfer of immediately available funds to the
accounts specified by the Holders thereof. Until otherwise designated by the
Company, the Company's office or agency in New York will be the office of the
Trustee maintained for such purpose.
The Notes will be issued only in fully registered form, without coupons, in
denominations if $1,000 and any integral multiple of $1,000; provided, that
certificated Notes originally purchased by or transferred to Institutional
Accredited Investors who are not also "qualified institutional buyers" (as
defined in Rule 144A under the Securities Act) ("QIBs") will be subject to a
minimum denomination of $100,000. No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
All references herein to payments of principal of, premium, if any, and
interest on the Notes shall be deemed to include any applicable Additional
Amounts that may become payable in respect of the Notes. See "-- Payment of
Additional Amounts."
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SUBORDINATION
The Notes will be unsecured obligations of the Company and will be
subordinated in right of payment to all current and future Senior Debt of the
Company, including the Company's obligations under the Credit Facility. The
Notes will rank pari passu with any future senior subordinated indebtedness of
the Company and will rank senior to all other subordinated indebtedness of the
Company. As of December 31, 1997, the Company had approximately $5.0 million of
Senior Debt outstanding and, through its Subsidiaries, had additional
liabilities (including trade payables and capital lease obligations) aggregating
approximately $268.1 million, which would rank senior, or effectively senior, as
the case may be, in right of payment to the Notes.
The Company has entered into the Credit Facility, under which the Company
and its United States Subsidiary may borrow up to an aggregate of $105.0 million
of revolving credit loans, subject to compliance with certain covenants and
financial ratios. The Company has guaranteed the obligations of its United
States Subsidiary under the Credit Facility. Borrowings by the Company under the
Credit Facility, and guarantees by the Company of borrowings by its United
States Subsidiary, constitute Senior Debt. The Company anticipates increasing
the aggregate principal amount of revolving credit loans that may be made under
the Credit Facility (although no assurances can be given as to the availability
or amount of any such increase). See "Description of the Credit Facility."
The Company is a holding company with no business operations other than (i)
holding the capital stock of its Subsidiaries and (ii) advancing funds to, and
receiving funds from, its subsidiaries. In repaying its indebtedness, including
the Notes, the Company must rely on dividends and other payments made to it by
its Subsidiaries.
The Holders of the Notes will have no direct claims against the Company's
Subsidiaries. The ability of the Company's Subsidiaries to make payments to the
Company will be affected by the obligations of such Subsidiaries to their
creditors. Claims of holders of indebtedness of the Company, including the
Notes, against the cash flow and assets of the Company's Subsidiaries will be
effectively subordinated to claims of such creditors.
In addition, the rights of the Holders of the Notes to participate in the
assets of any Subsidiary of the Company upon such Subsidiary's liquidation or
recapitalization will be subject to the prior claims of such Subsidiary's
creditors. The ability of the Company's Subsidiaries to make payments to the
Company will also be subject to, among other things, applicable state and
foreign corporate laws and other laws and regulations. In order to pay the
principal amount at maturity of the Notes, the Company may be required to adopt
one or more alternatives, such as a refinancing of the Notes. See "Risk
Factors -- Holding Company Structure."
Upon any distribution to creditors of the Company in a total or partial
liquidation, winding up, reorganization or dissolution of the Company or in a
voluntary or involuntary bankruptcy, reorganization, insolvency, receivership or
similar proceeding relating to the Company or its property, an assignment for
the benefit of creditors or any marshalling of the Company's assets and
liabilities, the holders of Senior Debt will be entitled to receive payment in
full in cash of all Obligations due in respect of such Senior Debt (including
interest after the commencement of any such proceeding at the rate specified in
the applicable Senior Debt) before the Holders of the Notes will be entitled to
receive any payment with respect to the Notes, and until all Obligations with
respect to Senior Debt are paid in full in cash, any distribution to which the
Holders of the Notes would be entitled shall be made to the holders of Senior
Debt (except that Holders of the Notes may receive Permitted Junior Securities
and payments made from the trust described under "-- Legal Defeasance and
Covenant Defeasance").
The Company also may not make any payment upon or in respect of the Notes
(except in Permitted Junior Securities or from the trust described under
"-- Legal Defeasance and Covenant Defeasance") if (i) a default in the payment
of the principal of, premium, if any, or interest on Designated Senior Debt
occurs and is continuing beyond any applicable period of grace or (ii) any other
default occurs and is continuing with respect to Designated Senior Debt that
permits holders of the Designated Senior Debt as to which such default relates
to accelerate its maturity and, in the case of clause (ii), the Trustee receives
a notice of such
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default (a "Payment Blockage Notice") from the Company and the holders of any
Designated Senior Debt. Payments on the Notes may and shall be resumed (x) in
the case of a payment default, upon the date on which such default is cured or
waived and (y) in case of a nonpayment default, the earlier of (a) the date on
which such nonpayment default is cured or waived, (b) 179 days after the date on
which the applicable Payment Blockage Notice is received, (c) the date such
Designated Senior Debt shall have been discharged or paid in full in cash or (d)
the date such Payment Blockage Period shall have been terminated by written
notice to the Company or the Trustee from the holders of Designated Senior Debt
initiating such Payment Blockage Period, after which, in the case of clauses
(a), (b), (c) and (d), the Company shall resume making any and all required
payments in respect of the Notes, including any payments not made to the Holders
of the Notes during the Payment Blockage Period due to the foregoing
prohibitions, unless the provisions described in clause (i) are then applicable.
No new period of payment blockage may be commenced unless and until 360 days
have elapsed since the effectiveness of the immediately prior Payment Blockage
Notice. No nonpayment default that existed or was continuing on the date of
delivery of any Payment Blockage Notice to the Trustee shall be, or be made, the
basis for a subsequent Payment Blockage Notice unless such default shall have
been cured or waived for a period of not less than 90 days.
The Indenture further requires that the Trustee provide the holders of
Designated Senior Debt at least 10 days prior written notice of any acceleration
of the maturity of the Notes.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders of the Notes may recover less ratably
than creditors of the Company who are holders of Senior Debt. The Indenture will
limit, subject to certain financial tests, the amount of additional Debt,
including Senior Debt, that the Company and its Subsidiaries can incur. See
"-- Certain Covenants -- Incurrence of Debt and Issuance of Preferred Stock."
REDEMPTION
Optional Redemption After October 15, 2002.
The Notes will be redeemable at the option of the Company, in whole or in
part, at any time on or after October 15, 2002 upon not less than 30 nor more
than 60 days' notice, at the redemption prices (expressed as percentages of
principal amount) set forth below plus accrued and unpaid interest thereon to
the applicable redemption date, if redeemed during the twelve-month period
beginning on October 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---------------------------------------------------------- ----------
<S> <C>
2002...................................................... 104.375%
2003...................................................... 102.917
2004...................................................... 101.459
2005 and thereafter....................................... 100.000%
</TABLE>
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
Optional Redemption After Ordinary Shares Offering.
Notwithstanding the foregoing, during the first 36 months after the date of
this Prospectus, the Company may on any one or more occasions redeem up to an
aggregate of $52.5 million in aggregate principal amount of the Notes at a
redemption price of 108.75% of the principal amount thereof, plus accrued and
unpaid interest thereon to the redemption date, with the net cash proceeds of a
public or private offering of Ordinary Shares of the Company (other than the
Equity Offering) (an "Equity Sale"); provided that at least $97.5 million in
aggregate principal amount of Notes remain outstanding immediately after the
occurrence of such redemption; and provided, further, that such redemption shall
occur within 90 days of the date of the closing of such Equity Sale.
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Optional Redemption in Circumstances Involving Taxation.
If, as the result of any change in or any amendment to the laws, including
any applicable double taxation treaty or convention, of Singapore (or any Other
Jurisdiction, as defined below under "Payment of Additional Amounts"), or of any
political subdivision or taxing authority thereof, affecting taxation, or any
change in the application or interpretation of such laws, double taxation treaty
or convention (a "Change in Tax Law"), which change or amendment becomes
effective on or after the original issuance date of the Notes (or, in certain
circumstances, such later date on which any assignee of the Company or a
successor corporation to the Company becomes such as permitted under the
Indenture), it is determined, by the Company or such assignee (which terms, for
purposes of the remainder of this paragraph, include any successor thereto) that
(i) the Company or its assignee would be required to make payments of Additional
Amounts on the next succeeding date for the payment thereof and (ii) the effect
of such Change in Tax Law cannot be avoided through any reasonable measures
available to the Company, the Company may, at its option, redeem the Notes in
whole at any time at a redemption price equal to 100% of the principal amount
thereof plus accrued and unpaid interest to the date fixed for redemption (the
"Tax Redemption Price").
Selection and Notice.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. Notices of redemption may not be conditional. If any Note is to be
redeemed in part only, the notice of redemption that relates to such Note shall
state the portion of the principal amount thereof to be redeemed. A new Note in
principal amount equal to the unredeemed portion thereof will be issued in the
name of the Holder thereof upon cancellation of the original Note. Notes called
for redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on the Notes or portions of them
called for redemption.
REPURCHASE AT THE OPTION OF HOLDERS UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest thereon, if any, to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Company will mail
a notice to each Holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase Notes on the date
specified in such notice, which date shall be no earlier than 30 days and no
later than 60 days from the date such notice is mailed (the "Change of Control
Payment Date"), pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of Control.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture will provide
that, prior to complying with the provisions of this
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covenant, but in any event within 90 days following a Change of Control, the
Company will either repay in full in cash all outstanding Senior Debt or obtain
the requisite consents, if any, under all agreements governing outstanding
Senior Debt to permit the repurchase of Notes required by this covenant. The
Company will publicly announce the results of the Change of Control Offer on or
as soon as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The Credit Facility restricts the ability of the Company to purchase any
Notes and other senior subordinated or subordinated indebtedness of the Company,
and also provides that certain change of control events with respect to the
Company constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. In the event any such restrictions
would prohibit the Company from repurchasing Notes upon a Change of Control, the
Company could seek the consent of its lenders to the purchase of Notes or could
attempt to refinance the borrowings that contain such restrictions. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture which would, in turn, constitute as default under the Credit
Facility. In such circumstances, the subordination provisions in the Indenture
would likely restrict payments to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole to any "person" (as such term is used in Section 13(d)(3) of the Exchange
Act), (ii) the adoption by the Company of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any "person" (as defined above) becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly
or indirectly, of more than 50% of the Voting Stock of the Company (measured by
voting power rather than number of shares), or (iv) the first day on which a
majority of the members of the Board of Directors of the Company are not
Continuing Directors.
The Change of Control provision of the Notes may in certain circumstances
make it more difficult or discourage a takeover of the Company and, as a result,
may make removal of incumbent management more difficult. The Change of Control
provision, however, is not the result of the Company's knowledge of any specific
effort to accumulate the Company's stock or to obtain control of the Company by
means of a merger, tender offer, solicitation or otherwise, or part of a plan by
management to adopt a series of anti-takeover provisions. Instead, the Change of
Control provision is a result of negotiations between the Company and the
Initial Purchasers. The Company is not presently in discussions or negotiations
with respect to any pending offers which, if accepted, would result in a
transaction involving a Change of Control, although it is possible that the
Company would decide to do so in the future.
The provisions of the Indenture would not necessarily afford Holders of the
Notes protection in the event of a highly leveraged transaction, reorganization,
restructuring, merger or similar transaction involving the Company that may
adversely affect Holders of the Notes.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Notes
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to require the Company to repurchase such Notes as a result of a sale, lease,
transfer, conveyance or other disposition of less than all of the assets of the
Company and its Subsidiaries taken as a whole to another person or group may be
uncertain.
"Continuing Director" means, as of any date of determination, any member of
the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election and who voted with respect to such nomination or
election; provided that a majority of the members of the Board voting with
respect thereto shall at the time have been Continuing Directors.
CERTAIN COVENANTS
Restricted Payments.
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly: (i) declare or pay any dividend
or make any other payment or distribution on account of the Company's or any of
its Subsidiaries' Equity Interests (including, without limitation, any payment
in connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's or any of its Subsidiaries' Equity
Interests in their capacity as such (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company),
except to the extent the entirety of such dividend or distribution is actually
paid to the Company or a Subsidiary of the Company (and in the case of a
dividend or distribution by any non-Wholly Owned Subsidiary of the Company, to
any other holder of Equity Interests of such non-Wholly Owned Subsidiary on a
pro rata basis); (ii) purchase, redeem or otherwise acquire or retire for value
(including without limitation, in connection with any merger or consolidation
involving the Company) any Equity Interests of the Company or any direct or
indirect parent of the Company, (iii) make any payment on or with respect to, or
purchase, redeem, defease or otherwise acquire or retire for value any
Subordinated Debt, except a payment of interest or principal at Stated Maturity;
or (iv) make any Restricted Investment (all such payments and other actions set
forth in clauses (i) through (iv) above being collectively referred to as
"Restricted Payments"), unless, at the time of and after giving effect to such
Restricted Payment:
(a) no Default or Event of Default shall have occurred and be continuing or
would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made at
the beginning of the applicable four-quarter period, have been permitted to
incur at least $1.00 of additional Debt pursuant to the covenant described below
under the caption "-- Incurrence of Debt and Issuance of Preferred Stock"; and
(c) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by the Company and its Subsidiaries after the
date of the Indenture (excluding Restricted Payments permitted by clause (ii) of
the next succeeding paragraph), is less than the sum of (i) 50% of the
Consolidated Net Income (or if Consolidated Net Income shall be a loss, minus
100% of such loss) of the Company for the period (taken as one accounting
period) from (and including) the fiscal quarter commencing January 1, 1998 to
the end of the Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted Payment (or,
if such Consolidated Net Income for such period is a deficit, less 100% of such
deficit), plus (ii) 100% of the aggregate net cash proceeds received by the
Company from the issue or sale since the date of the indenture of Equity
Interests of the Company (other than the net cash proceeds to be received in the
Equity Offering and other than Disqualified Stock) or of Disqualified Stock or
debt securities of the Company that have been converted into such Equity
Interests (other than Equity Interests (or Disqualified Stock or convertible
debt securities) sold to a Subsidiary of the Company and other than Disqualified
Stock or convertible debt securities that have been converted into Disqualified
Stock).
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The foregoing provisions do not prohibit (i) the payment of any dividend
within 60 days after the date of declaration thereof, if at said date of
declaration such payment would have complied with the provisions of the
Indenture; (ii) the redemption, repurchase, retirement or other acquisition of
any Equity Interests of the Company or any Subsidiary of the Company or any
Subordinated Debt, in each case in exchange for, or out of the net proceeds of,
the substantially concurrent sale (other than to a Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
provided, however, that the amount of any such net proceeds that are utilized
for any such redemption, repurchase, retirement or other acquisition shall be
excluded from clause (ii) of the preceding paragraph; and (iii) the redemption,
repurchase, refinancing or defeasance of Subordinated Debt in exchange for, or
with the net cash proceeds from, an incurrence of Permitted Refinancing Debt.
The amount of all Restricted Payments (other than cash) shall be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued by the Company or such Subsidiary, as the
case may be, pursuant to the Restricted Payment. The fair market value of any
non-cash Restricted Payment having a fair market value in excess of $5.0 million
shall be determined by the Board of Directors whose resolution with respect
thereto shall be delivered to the Trustee. Not later than the date of making any
Restricted Payment, the Company shall deliver to the Trustee an Officers'
Certificate stating that such Restricted Payment is permitted and setting forth
the basis upon which the calculations required by the covenant "Restricted
Payments" were computed.
Incurrence of Debt and Issuance of Preferred Stock.
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Debt (including Acquired
Debt) and that the Company will not permit any of its Subsidiaries to issue any
shares of preferred stock; provided, however, that the Company and any
Subsidiary may incur Debt (including Acquired Debt) if the Fixed Charge Coverage
Ratio for the Company's and its Subsidiaries' most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Debt is incurred would
have been at least 2.0 to 1.0, determined on a pro forma basis (including a pro
forma application of the net proceeds therefrom), as if the additional Debt had
been incurred at the beginning of such four-quarter period.
The provisions of the first paragraph of this covenant will not apply to
the incurrence of any of the following items of Debt (collectively, "Permitted
Debt"):
(i) the incurrence by the Company or any of its Subsidiaries of
revolving credit Debt and letters of credit (with letters of credit being
deemed to have a principal amount equal to the maximum potential liability
of the Company and its Subsidiaries thereunder) under Credit Agreements;
provided that the aggregate principal amount of all revolving credit Debt
outstanding under all Credit Agreements and incurred pursuant to this
clause (i), after giving effect to such incurrence, including all Permitted
Refinancing Debt incurred to refund, refinance or replace any other Debt
incurred pursuant to this clause (i), together with all amounts outstanding
under clause (ii) below, does not exceed the greater of $125.0 million and
the Borrowing Base;
(ii) the incurrence by the Company or any of its Subsidiaries of
Receivables Program Debt in an aggregate amount at any one time outstanding
not to exceed, together with the amounts outstanding under clause (i)
above, the greater of $125.0 million and the Borrowing Base;
(iii) the incurrence by the Company and its Subsidiaries of Existing
Debt;
(iv) the incurrence by the Company or any of its Subsidiaries of Debt
represented by the Notes and permissible Debt under the Credit Facility as
in effect on the date of the Indenture;
(v) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Debt in exchange for, or the net proceeds of which
are used to refund, refinance or replace, Debt that was permitted by the
Indenture to be incurred;
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(vi) the incurrence by the Company or any of its Subsidiaries of
intercompany Debt between or among the Company and any of its Wholly Owned
Subsidiaries; provided, however, that (i) if the Company is the obligor on
such Debt, such Debt is expressly subordinated to the prior payment in full
in cash of all Obligations with respect to the Notes and (ii)(A) any
subsequent issuance or transfer of Equity Interests that results in any
such Debt being held by a Person other than the Company or a Wholly Owned
Subsidiary and (B) any sale or other transfer of any such Debt to a Person
that is not either the Company or a Wholly Owned Subsidiary shall be
deemed, in each case, to constitute an incurrence of such Debt by the
Company or such Subsidiary, as the case may be;
(vii) the incurrence by the Company or any of its Subsidiaries of
Hedging Obligations that are incurred for the purpose of fixing or hedging
interest rate risk with respect to any floating rate Debt that is permitted
by the terms of the Indenture to be outstanding or for the purpose of
fixing or hedging currency exchange risk with respect to any currency
exchanges;
(viii) Capitalized Lease Obligations and Purchase Money Obligations of
the Company and its Subsidiaries in aggregate principal amount (or accreted
value, as applicable) at any time outstanding not to exceed 7.5% of Total
Assets;
(ix) Guarantees by the Company or any of its Subsidiaries of Debt of
the Company or any Subsidiary permitted to be incurred under another
provision of this covenant;
(x) Indebtedness of the Company or any Subsidiary in respect of
performance bonds, bankers' acceptances, trade letters of credit, surety
bonds and guarantees provided by the Company or any Subsidiary in the
ordinary course of business, not to exceed at any given time $5.0 million
outstanding in the aggregate; and
(xi) the incurrence by the Company or any of its Subsidiaries of
additional Debt in an aggregate principal amount (or accreted value, as
applicable) at any time outstanding, including all Permitted Refinancing
Debt incurred to refund, refinance or replace any other Debt incurred
pursuant to this clause (xi), not to exceed $10.0 million.
For purposes of determining compliance with this covenant, in the event
that an item of Debt meets the criteria of more than one of the categories of
Permitted Debt described in clauses (i) through (xi) above or is entitled to be
incurred pursuant to the first paragraph of this covenant, the Company shall, in
its sole discretion, classify such item of Debt in any manner that complies with
this covenant and such item of Debt will be treated as having been incurred
pursuant to only one of such clauses or pursuant to the first paragraph hereof.
Accrual of interest, the accretion of accreted value and the payment of interest
in the form of additional Debt will not be deemed to be an incurrence of Debt
for purposes of this covenant.
Liens.
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly create, incur, assume or suffer
to exist any Lien that secures obligations under any Pari Passu Debt or
Subordinated Debt on any asset or property of the Company or such Subsidiary, or
any income or profits therefrom, or assign or convey any right to receive income
therefrom, unless the Notes are equally and ratably secured with the obligations
so secured or until such time as such obligations are no longer secured by a
Lien.
Merger, Consolidation or Sale of Assets.
The Indenture provides that the Company will not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of either (A) the
United States, any state thereof, the District of Columbia or Singapore or (B) a
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Subject Country, in which case the Company will have satisfied its obligations
as set forth below under the caption "-- Restrictions Upon Reincorporating,
Merging or Consolidating into a Subject Country"; (ii) the entity or Person
formed by or surviving any such consolidation or merger (if other than the
Company) or the entity or Person to which such sale, assignment, transfer,
lease, conveyance or other disposition shall have been made assumes all the
obligations of the Company under the Notes and the Indenture pursuant to a
supplemental indenture in a form reasonably satisfactory to the Trustee; (iii)
immediately after such transaction no Default or Event of Default exists; and
(iv) except in the case of a merger of the Company with or into a Wholly Owned
Subsidiary of the Company, the Company or the entity or Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (x) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (y) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Debt pursuant to the Fixed Charge Coverage
Ratio test set forth in the first paragraph of the covenant described above
under the caption "-- Incurrence of Debt and Issuance of Preferred Stock."
Transactions with Affiliates.
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, make any payment to, or sell, lease, transfer or
otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any transaction,
contract, agreement, understanding, loan, advance or guarantee with, or for the
benefit of, any Affiliate (each of the foregoing, an "Affiliate Transaction"),
unless (i) such Affiliate Transaction is on terms that are no less favorable to
the Company or the relevant Subsidiary than those that would have been obtained
in a comparable transaction by the Company or such Subsidiary with an unrelated
Person and (ii) the Company delivers to the Trustee, with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $1.0 million, a resolution of the Board of
Directors set forth in an Officers' Certificate certifying that such Affiliate
Transaction complies with clause (i) above and that such Affiliate Transaction
has been approved by a majority of the disinterested members of the Board of
Directors; provided that (w) any employment agreement or compensation
arrangement entered into by the Company or any of its Subsidiaries in the
ordinary course of business and consistent with the past practice of the Company
or such Subsidiary that is not otherwise prohibited by the Indenture, (x)
transactions between or among the Company and/or its Subsidiaries that are not
otherwise prohibited by the Indenture, and (y) Restricted Payments and Permitted
Investments that are permitted by the provisions of the Indenture described
above under the caption "-- Restricted Payments," and (z) indemnification of
officers and directors in each case, shall not be deemed Affiliate Transactions.
Dividend and Other Payment Restrictions Affecting Subsidiaries.
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create or otherwise cause or
suffer to exist or become effective any encumbrance or restriction on the
ability of any Subsidiary to (i)(a) pay dividends or make any other
distributions to the Company or any of its Subsidiaries (1) on its Capital Stock
or (2) with respect to any other interest or participation in, or measured by,
its profits, or (b) pay any indebtedness owed to the Company or any of its
Subsidiaries, (ii) make loans or advances to the Company or any of its
Subsidiaries or (iii) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (a) Existing Debt as in effect on the date of the
Indenture, (b) the Credit Facility as in effect as of the date of the Indenture,
and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings thereof, provided that
such amendments, modifications, restatements, renewals, increases, supplements,
refundings, replacement or refinancings are not more restrictive taken as a
whole with respect to such dividend and other payment restrictions than those
contained in the Credit Facility as in effect on the date of the Indenture (as
determined by the Board of Directors of the Company in its reasonable and good
faith judgment), (c) the Indenture and the Notes, (d) applicable law,
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(e) any instrument governing Debt or Capital Stock of a Person acquired by the
Company or any of its Subsidiaries as in effect at the time of such acquisition
(except to the extent such Debt was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided that,
in the case of Debt, such Debt was permitted by the terms of the Indentures to
be incurred, (f) customary non-assignment provisions in leases and other
agreements entered into in the ordinary course of business and consistent with
past practices, restricting assignment or restricting transfers of non-cash
assets, (g) Purchase Money Obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, (h) Permitted Refinancing Debt,
provided that the restrictions contained in the agreements governing such
Permitted Refinancing Debt are not more restrictive taken as a whole than those
contained in the agreements governing the Debt being refinanced (as determined
by the Board of Directors of the Company in its reasonable and good faith
judgment), (i) contracts for the sale of assets, or (j) customary provisions in
agreements with respect to Permitted Joint Ventures.
Sale and Leaseback Transactions.
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, enter into any sale and leaseback transaction; provided
that the Company may enter into a sale and leaseback transaction if (i) the
Company could have (a) incurred Debt in an amount equal to the Attributable Debt
relating to such sale and leaseback transaction pursuant to the Fixed Charge
Coverage Ratio test set forth in the first paragraph of the covenant described
above under the caption "-- Incurrence of Debt and Issuance of Preferred Stock"
and (b) incurred a Lien to secure such Debt pursuant to the covenant described
above under the caption "-- Liens," (ii) the gross cash proceeds of such sale
and leaseback transaction are at least equal to the fair market value (as
determined in good faith by the Board of Directors and set forth in an Officers'
Certificate delivered to the Trustee) of the property that is the subject of
such sale and leaseback transaction and (iii) the transfer of assets in such
sale and leaseback transaction is permitted by, and the Company applies the
proceeds of such transaction in compliance with, the covenant described below
under the caption "-- Asset Sales."
Asset Sales.
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, consummate an Asset Sale unless (i) the Company (or the
Subsidiary, as the case may be) receives consideration at the time of such Asset
Sale at least equal to the fair market value (evidenced by a resolution of the
Board of Directors set forth in an Officers' Certificate delivered to the
Trustee) of the assets or Equity Interests issued or sold or otherwise disposed
of and (ii) at least 75% of the consideration therefor received by the Company
or such Subsidiary is in the form of cash; provided that the amount of (x) any
liabilities (as shown on the Company's or such Subsidiary's most recent balance
sheet) of the Company or any Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the Notes or any guarantee
thereof) that are assumed by the transferee of any such assets pursuant to a
customary novation agreement or other agreement that releases or indemnifies the
Company or such Subsidiary from further liability and (y) any securities, notes
or other obligations received by the Company or any such Subsidiary from such
transferee that are immediately converted by the Company or such Subsidiary into
cash (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision.
Within 270 days after the receipt of any Net Proceeds from an Asset Sale,
the Company may apply such Net Proceeds at its option, (a) to permanently repay,
reduce or secure letters of credit in respect of Senior Debt (and to
correspondingly reduce commitments with respect thereto in the case of revolving
borrowings), and/or (b) to the acquisition of a controlling interest in another
business, the making of a capital expenditure or Permitted Investment or the
acquisition of other assets, in each case, for use in the same or a similar line
of business as the Company was engaged in on the date of such Asset Sale or
reasonable extensions thereof. Pending the final application of any such Net
Proceeds, the Company may temporarily reduce indebtedness under the Credit
Facility (or any alternative or subsequent revolving credit agreement where
borrowings thereunder constitute Senior Debt or Debt of a Subsidiary) or
otherwise invest such Net Proceeds in any
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manner that is not prohibited by the Indenture. Any Net Proceeds from Asset
Sales that are not applied or invested as provided in the first sentence of this
paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $10.0 million, the
Company will be required to make an offer (an "Asset Sale Offer") to all Holders
of Notes and holders of any other Pari Passu Debt outstanding with provisions
requiring the Company to make an offer to purchase or redeem such indebtedness
with the proceeds from any Asset Sale as follows: (A) the Company will make an
offer to purchase from all holders of the Notes in accordance with the
procedures set forth in the Indenture in the maximum principal amount (expressed
as a multiple of $1,000) of Notes that may be purchased out of an amount (the
"Note Amount") equal to the product of such Excess Proceeds multiplied by a
fraction, the numerator of which is the outstanding principal amount of the
Notes, and the denominator of which is the sum of the outstanding principal
amount of the Notes and such Pari Passu Debt (subject to proration in the event
such amount is less than the aggregate Asset Sale Offered Price (as defined
herein) of all Notes tendered), and (B) to the extent required by such Pari
Passu Debt to permanently reduce the principal amount of such Pari Passu Debt,
the Company will make an offer to purchase or otherwise repurchase or redeem
Pari Passu Debt (an "Asset Sale Pari Passu Offer") in an amount (the "Pari Passu
Debt Amount") equal to the excess of the Excess Proceeds over the Note Amount;
provided that in no event will the Company be required to make an Asset Sale
Pari Passu Offer in a Pari Passu Debt Amount exceeding the principal amount of
such Pari Passu Debt plus accrued and unpaid interest thereon plus the amount of
any premium required to be paid to repurchase such Pari Passu Debt. The offer
price for the Notes will be payable in cash in an amount equal to 100% of the
principal amount of the Notes, plus accrued and unpaid interest, if any, to the
date (the "Asset Sale Offer Date") such Asset Sale Offer is consummated (the
"Asset Sale Offered Price"), in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate Asset Sale Offered Price of the
Notes tendered pursuant to the Asset Sale Offer is less than the Note Amount
relating thereto or the aggregate amount of Pari Passu Debt that is purchased in
an Asset Sale Pari Passu Offer is less than the Pari Passu Debt Amount, the
Company may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate principal amount of Notes and Pari Passu Debt surrendered by
holders thereof exceeds the amount of Excess Proceeds, the Trustee shall select
the Notes to be purchased on a pro rata basis. Upon the completion of the
purchase of all the Notes tendered pursuant to an Asset Sale Offer and the
completion of a Pari Passu Offer, the amount of Excess Proceeds, if any, shall
be reset at zero.
The Indenture provides that, if the Company becomes obligated to make an
Asset Sale Offer pursuant to the immediately preceding paragraph, the Notes and
the Pari Passu Debt shall be purchased by the Company, at the option of the
holders thereof, in whole or in part in integral multiples of $1,000, on a date
that is not earlier than 30 days and not later than 60 days from the date the
notice of the Asset Sale Offer is given to holders, or such later date as may be
necessary for the Company to comply with the requirements under the Exchange
Act.
The Indenture provides that the Company will comply with the applicable
tender offer rules, including Rule 14e-1 under the Exchange Act, and any other
applicable securities laws or regulations in connection with an Asset Sale
Offer.
Limitation on Senior Subordinated Debt.
The Indenture provides that the Company will not incur, create, issue,
assume, guarantee or otherwise become liable for any Debt that is subordinate or
junior in right of payment to any Senior Debt and senior in any respect in right
of payment to the Notes.
Limitations on Issuances of Guarantees of Debt.
The Indenture provides that the Company will not permit any of its
Subsidiaries, directly or indirectly, to guarantee or pledge any assets to
secure the payment of any Pari Passu Debt or Debt of the Company junior to or
subordinated in right of payment to any Pari Passu Debt unless the Company
causes each such Subsidiary to execute and deliver to the Trustee, prior to or
concurrently with the issuance of such guarantee, a supplemental indenture, in
form satisfactory to the Trustee, pursuant to which such Subsidiary
unconditionally
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guarantees on a senior subordinated basis the payment of principal of, premium,
if any, and interest on the Notes.
Notwithstanding the foregoing, any such Guarantee by a Subsidiary of the
Notes shall provide by its terms that it (and all Liens securing the same) shall
be automatically and unconditionally released and discharged upon any sale,
exchange or transfer, to any Person not an Affiliate of the Company, of all of
the Company's Capital Stock in, or all or substantially all the assets of, such
Subsidiary, which sale, exchange or transfer is made in compliance with the
applicable provisions of the Indenture.
No Payments for Consents.
The Indenture provides that neither the Company nor any of its Subsidiaries
will, directly or indirectly, pay or cause to be paid any consideration, whether
by way of interest, fee or otherwise, to any Holder of any Notes for or as an
inducement to any consent, waiver or amendment of any of the terms or provisions
of the Indenture or the Notes unless such consideration is offered to be paid or
is paid to all Holders of the Notes that consent, waive or agree to amend in the
time frame set forth in the solicitation documents relating to such consent,
waiver or agreement.
Provision for Financial Statements.
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, the Company will
file a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Company has agreed that, for so long as any Notes
remain outstanding, it will furnish to the Holders and to securities analysts
and prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i) Debt of
any other Person existing at the time such other Person is merged with or into
or became a Subsidiary of such specified Person, including, without limitation,
Debt incurred in connection with, or in contemplation of, such other Person
merging with or into or becoming a Subsidiary of such specified Person, and (ii)
Debt secured by a Lien encumbering any asset acquired by such specified Person
which, in each case, is not repaid at or within five days following the date of
such acquisition.
"Additional Amounts" shall have the definition set forth under "Payment of
Additional Amounts." All references herein to payments of principal of, premium,
if any, and interest on the Notes shall be deemed to include any applicable
Additional Amounts that may become payable in respect of the Notes.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "Control"
(including, with correlative meanings, the terms "Controlling," "Controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise.
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"Asset Sale" means (i) the sale, lease, transfer, conveyance or other
disposition of any assets or rights (including, without limitation, by way of a
sale and leaseback) other than in the ordinary course of business (provided that
the sale, lease, transfer, conveyance or other disposition of all or
substantially all of the assets of the Company and its Subsidiaries taken as a
whole will be governed by the provisions of the Indenture described above under
the caption "Repurchase at the Option of Holders Upon Change of Control" and/or
the provisions described above under the caption "-- Certain
Covenants -- Merger, Consolidation or Sale of Assets" and not by the provisions
of the Asset Sale covenant), and (ii) the issue or sale by the Company or any of
its Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in
the case of either clause (i) or (ii), whether in a single transaction or a
series of related transactions (a) that have a fair market value in excess of
$5.0 million or (b) net proceeds in excess of $5.0 million. Notwithstanding the
foregoing: (v) a transfer of assets by the Company to a Subsidiary or by a
Subsidiary to the Company or to another Subsidiary, (w) a disposition of goods
held for sale in the ordinary course of business or obsolete equipment in the
ordinary course of business consistent with past practices of the Company and
its Subsidiaries, (x) assets transferred or disposed of in connection with a
Receivables Program, (y) an issuance of Equity Interests by a Subsidiary to the
Company or to another Subsidiary, and (z) a Restricted Payment or Permitted
Investment that is permitted by the covenant described above under the caption
"-- Certain Covenants -- Restricted Payments" will not be deemed to be Asset
Sales.
"Asset Sale Offer" shall have the definition set forth under "-- Certain
Covenants -- Asset Sales."
"Asset Sale Offer Date" shall have the definition set forth under
"-- Certain Covenants -- Asset Sales."
"Asset Sale Offered Price" shall have the definition set forth under
"-- Certain Covenants -- Asset Sales."
"Asset Sale Pari Passu Offer" shall have the definition set forth under
"-- Certain Covenants -- Asset Sales."
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Borrowing Base" means an amount equal to the sum of (i) 85% of the value
of accounts receivable (before giving effect to any related reserves) shown on
the Company's most recent consolidated balance sheet that are not more than 90
days past due in accordance with GAAP and (ii) 60% of the value of the inventory
shown on the Company's consolidated balance sheet in accordance with GAAP.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership or limited liability
company, partnership or membership interests (whether general or limited) and
(iv) any other interest or participation that confers on a Person the right to
receive a share of the profits and losses of, or distributions of assets of, the
issuing Person.
"Cash Equivalents" means (i) United States dollars, (ii) securities issued
or directly and fully guaranteed or insured by the United States government or
any agency or instrumentality thereof having maturities of not more than six
months from the date of acquisition, (iii) certificates of deposit and
eurodollar time deposits with maturities of six months or less from the date of
acquisition, bankers' acceptances with maturities not exceeding six months and
overnight bank deposits, in each case with any lender party to the Credit
Facility or with any domestic commercial bank having capital and surplus in
excess of $500 million and a Keefe Bank Watch Rating of "B" or better, (iv)
repurchase obligations with a term of not more than seven days for underlying
securities of the types described in clauses (ii) and (iii) above entered into
with any
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financial institution meeting the qualifications specified in clause (iii) above
and (v) commercial paper having the highest rating obtainable from Moodys
Investors Service, Inc. or Standard & Poor's Corporation and in each case
maturing within six months after the date of acquisition.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued and whether or not capitalized (including,
without limitation, amortization of debt issuance costs and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations), to the extent that any such expense was deducted in
computing such Consolidated Net Income, plus (iv) depreciation, amortization
(including amortization of goodwill and other intangibles but excluding
amortization of prepaid cash expenses that were paid in a prior period) and
other non-cash expenses (excluding any such non-cash expense to the extent that
it represents an accrual of or reserve for cash expenses in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash expenses were deducted in
computing such Consolidated Net Income, minus (v) other non-recurring non-cash
items increasing such Consolidated Net Income for such period (which will be
added back to Consolidated Cash Flow in any subsequent period to the extent cash
is received in respect of such item in such subsequent period), in each case, on
a consolidated basis and determined in accordance with GAAP. Notwithstanding the
foregoing, the provision for taxes on the income or profits of, and the
depreciation and amortization and other non-cash charges of, a Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent that a corresponding amount would be
permitted at the date of determination to be dividended to the Company by such
Subsidiary without prior governmental approval (that has not been obtained), and
without direct or indirect restriction pursuant to the terms of its charter and
all agreements, instruments, judgments, decrees, orders, statutes, rules and
governmental regulations applicable to that Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income (but not loss) of any Person that is not a Subsidiary or
that is accounted for by the equity method of accounting shall be included only
to the extent of the amount of dividends or distributions paid in cash to the
referent Person or a Wholly Owned Subsidiary thereof, (ii) the Net Income of any
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that Net Income is not
at the date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of the
terms of its charter or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to that Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded and (iv) the cumulative effect of a change in accounting principles
shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the ordinary shareholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of
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such business) subsequent to the date of the Indenture in the book value of any
asset owned by such Person or a consolidated Subsidiary of such Person, (y) all
investments as of such date in unconsolidated Subsidiaries and in Persons that
are not Subsidiaries (except, in each case, Permitted Investments), and (z) all
unamortized debt discount and expense and unamortized deferred charges as of
such date, all of the foregoing determined in accordance with GAAP.
"Credit Agreements" means, with respect to the Company or any Subsidiary,
one or more debt facilities (including, without limitation, the Credit Facility)
or commercial paper facilities with banks or other institutional lenders
providing for revolving credit loans, term loans, receivables financing
(including through the sale of receivables to such lenders or to special purpose
entities formed to borrow from such lenders against such receivables) or letters
of credit, in each case, as amended, restated, modified, renewed, refunded,
replaced or refinanced in whole or in part from time to time. Debt under Credit
Agreements outstanding on the date on which Notes are first issued and
authenticated under the Indenture shall be deemed to have been incurred on such
date in reliance on the exception provided by clause (i) of the definition of
Permitted Debt.
"Credit Facility" means, collectively, the Revolving Credit and Term Loan
Agreement dated as of March 27, 1997 by and among the Company, the Bank and the
other lending institutions party thereto and the Bank, as Agent, and the
Revolving Credit Agreement dated as of March 27, 1997 by and among the Company's
United States Subsidiary, the Bank and the other lending institutions party
thereto and the Bank, as Agent, and in each case as amended, modified, renewed,
restated, refunded, replaced or refinanced from time to time.
"Debt" means, with respect to any Person, any indebtedness of such Person,
whether or not contingent, in respect of borrowed money or evidenced by bonds,
notes, debentures or similar instruments or letters of credit (or reimbursement
agreements in respect thereof) or banker's acceptances or representing Capital
Lease Obligations or the balance deferred and unpaid of the purchase price of
any property or representing any Hedging Obligations, except any such balance
that constitutes an accrued expense or trade payable, if and to the extent any
of the foregoing indebtedness (other than letters of credit and Hedging
Obligations) would appear as a liability upon a balance sheet of such Person
prepared in accordance with GAAP, as well as all Debt of others secured by a
Lien on any asset of such Person (whether or not such Debt is assumed by such
Person) and, to the extent not otherwise included, the Guarantee by such Person
of any Debt of any other Person. The amount of any Debt outstanding as of any
date shall be (i) the accreted value thereof, in the case of any Debt that does
not require current payments of interest, and (ii) the principal amount thereof,
together with any interest thereon that is more than 30 days past due, in the
case of any other Debt.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) any Debt under the Credit Facility (and
any guarantees thereof) and (ii) any other Senior Debt otherwise designated by
the Company (which designation shall have been approved in writing by the
Representative under the Credit Facility, and such approval shall have been
delivered to the Trustee, so long as (A) the Credit Facility is in effect and
(B) the Company shall not then be a party to a credit facility or similar
arrangement (other than the Credit Facility) that provides for loans in an
aggregate principal amount that is greater than the aggregate principal amount
of loans to the Company that may be made under the Credit Facility and that are
not entered into in violation of the Credit Facility), and the Representative
thereunder, as "Designated Senior Debt" and, in the case of the designation by
the Company, certified in an Officer's Certificate delivered to the Trustee;
provided that not less than $5.0 million aggregate principal amount is
outstanding under Designated Senior Debt at the date of the designation and at
the date of determination.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that is 91 days after the date on which the Notes mature.
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"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Sale" shall have the definition set forth under
"Redemption -- Optional Redemption After Ordinary Shares Offering."
"Existing Debt" means Debt of the Company and its Subsidiaries (other than
Debt under the Credit Facility) in existence on the date of the Indenture, until
such amounts are repaid.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person for such period
to the Fixed Charges of such Person for such period. In the event that the
Company or any of its Subsidiaries incurs, assumes, Guarantees or redeems any
Debt (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Debt, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Subsidiaries, including through mergers
or consolidations and including any related financing transactions, during the
four-quarter reference period or subsequent to such reference period and on or
prior to the Calculation Date shall be deemed to have occurred on the first day
of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated without giving effect to clause (iii) of
the proviso set forth in the definition of Consolidated Net Income, and (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed Charges will
not be obligations of the referent Person or any of its Subsidiaries following
the Calculation Date.
"Fixed Charges" means, with respect to any Person for any period, the sum,
without duplication, of (i) the consolidated interest expense of such Person and
its Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of debt issuance costs and original issue discount,
non-cash interest payments, the interest component of any deferred payment
obligations, the interest component of all payments associated with Capital
Lease Obligations, imputed interest with respect to Attributable Debt,
commissions, discounts and other fees and charges incurred in respect of letter
of credit or bankers' acceptance financings, and net payments (if any) pursuant
to Hedging Obligations) and (ii) the consolidated interest expense of such
Person and its Subsidiaries that was capitalized during such period, and (iii)
any interest expense on Debt of another Person that is Guaranteed by such Person
or one of its Subsidiaries or secured by a Lien on assets of such Person or one
of its Subsidiaries (whether or not such Guarantee or Lien is called upon) and
(iv) the product of (a) all dividend payments, whether or not in cash, on any
series of preferred stock of such Person or any of its Subsidiaries, other than
dividend payments on Equity Interests payable solely in Equity Interests of the
Company, times (b) a fraction, the numerator of which is one and the denominator
of which is one minus the then current combined federal, state and local
statutory tax rate of such Person, expressed as a decimal, in each case, on a
consolidated basis and in accordance with GAAP.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any Debt.
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"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such Person against fluctuations
in interest rates or currency exchange rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Debt or other obligations), advances or
capital contributions (excluding commission, travel and similar advances to
officers and employees made in the ordinary course of business), purchases or
other acquisitions for consideration of Debt, Equity Interests or other
securities, together with all items that are or would be classified as
investments on a balance sheet prepared in accordance with GAAP. If the Company
or any Subsidiary of the Company sells or otherwise disposes of any Equity
Interests of any direct or indirect Subsidiary of the Company such that, after
giving effect to any such sale or disposition, such Person is no longer a
Subsidiary of the Company, the Company shall be deemed to have made an
Investment on the date of any such sale or disposition equal to the fair market
value of the Equity Interests of such Subsidiary not sold or disposed of in an
amount determined as provided in the final paragraph of the covenant described
above under the caption "-- Restricted Payments."
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Subsidiaries or the
extinguishment of any Debt of such Person or any of its Subsidiaries and (ii)
any extraordinary or nonrecurring gain (but not loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Subsidiaries in respect of any Asset Sale (including, without
limitation, any cash received upon the sale or other disposition of any non-cash
consideration received in any Asset Sale), net of (i) the direct costs relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, (ii) taxes paid or payable as a result thereof
(after taking into account any available tax credits or deductions and any tax
sharing arrangements), (iii) any reserve for adjustment in respect of the sale
price of such asset or assets established in accordance with GAAP, or against
any liabilities associated with the Asset Sale, or the assets subject thereto,
and retained by the Company or any Subsidiary, and (iv) amounts required to be
applied to the repayment of Debt secured by a Lien on the asset or assets that
were the subject of such Asset Sale, or to the satisfaction of contractual
obligations either existing at the date of the Indenture, or entered into after
the date of the Indenture in connection with the payment of deferred purchase
price of the properties or assets that were the subject of such Asset Sale.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Debt.
"Pari Passu Debt" shall mean (i) any Debt of the Company that is pari passu
in right of payment to the Notes and (ii) with respect to any Guarantee of the
Notes, Debt which ranks pari passu in right of payment to such Guaranty.
"Pari Passu Debt Amount" shall have the definition set forth under
"-- Certain Covenants -- Asset Sales."
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"Permitted Investments" means (a) any Investment in the Company or in a
Subsidiary of the Company that is engaged in the same or a similar line of
business as the Company and its Subsidiaries (or reasonable extensions or
expansions thereof); (b) any Investment in Cash Equivalents; (c) any Investment
by the Company or any Subsidiary of the Company in a Person, if as a result of
such Investment (i) such Person becomes a Subsidiary of the Company that is
engaged in the same or a similar line of business as the Company and its
Subsidiaries (or reasonable extensions or expansions thereof) or (ii) such
Person is merged, consolidated or amalgamated with or into, or transfers or
conveys substantially all of its assets to, or is liquidated into, the Company
or a Subsidiary of the Company that is engaged in the same or a similar line of
business as the Company and its Subsidiaries (or reasonable extensions or
expansions thereof); (d) any Restricted Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described above under the caption
"-- Certain Covenants -- Asset Sales"; (e) any acquisition of assets solely in
exchange for the issuance of Equity Interests (other than Disqualified Stock) of
the Company; (f) Investments made in exchange for accounts receivable arising in
the ordinary course of business which have not been collected for 120 days and
which are, in the good faith of the Company, substantially impaired, provided
that any such Investments in excess of $5 million shall be approved by the Board
of Directors (evidenced by a resolution of the Board of Directors set forth in
an officers' certificate delivered to the Trustee), (g) Investments in Permitted
Joint Ventures, and Investments in suppliers to the Company and its
Subsidiaries, in an aggregate amount when taken together with all other
investments pursuant to this clause (g) does not exceed the greater of $10.0
million or 10% of Total Assets at any one time outstanding, (h) other
Investments in any Person having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (h) that are at the time outstanding, not to exceed $7.5 million.
For purposes of calculating the aggregate amount of Permitted Investments
permitted to be outstanding at any one time pursuant to clauses (g) and (h) of
the preceding sentence, (i) to the extent the consideration for any such
Investment consists of Equity Interests (other than Disqualified Stock) of the
Company, the value of the Equity Interests so issued will be ignored in
determining the amount of such Investment and (ii) the aggregate amount of such
Investments made by the Company and its Subsidiaries on or after the date of the
Indenture will be decreased (but not below zero) by an amount equal to the
lesser of (y) the cash return of capital to the Company or a Subsidiary with
respect to such Investment that is sold for cash or otherwise liquidated or
repaid for cash (less the cost of disposition, including applicable taxes, if
any) and (z) the initial amount of such Investment.
"Permitted Joint Venture" means any Person which is, directly or indirectly
through it subsidiaries or otherwise, engaged principally in the principal
business of the Company, or a reasonably related business, and the Capital Stock
(or securities convertible into Capital Stock) of which is owned by the Company
and one or more Persons other than the Company or any affiliate of the Company.
"Permitted Junior Securities" means Equity Interests in the Company or debt
securities that are subordinated to all Senior Debt (and any debt securities
issued in exchange for Senior Debt) to substantially the same extent as, or to a
greater extent than, the Notes are subordinated to Senior Debt pursuant to the
Indenture.
"Permitted Refinancing Debt" means any Debt of the Company or any of its
Subsidiaries issued in exchange for, or the net proceeds of which are used to
extend, refinance, renew, replace, defease or refund other Debt of the Company
or any of its Subsidiaries; provided that: (i) the principal amount (or accreted
value, if applicable) of such Permitted Refinancing Debt does not exceed the
principal amount of (or accreted value, if applicable), plus accrued interest
on, the Debt so extended, refinanced, renewed, replaced, defeased or refunded
(plus the amount of reasonable expenses incurred in connection therewith); (ii)
such Permitted Refinancing Debt has a final maturity date later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Debt being extended,
refinanced, renewed, replaced, defeased or refunded; (iii) if the Debt being
extended, refinanced, renewed, replaced, defeased or refunded is subordinated in
right of payment to the Notes, such Permitted Refinancing Debt has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation
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governing the Debt being extended, refinanced, renewed, replaced, defeased or
refunded; and (iv) such Debt is incurred either by the Company or by the
Subsidiary who is the obligor on the Debt being extended, refinanced, renewed,
replaced, defeased or refunded.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Purchase Money Obligations" of a Person means Debt of such Person incurred
in connection with the purchase, construction or improvement of property, plant
or equipment used in the business of such Person.
"Receivables Program" means, with respect to any Person, an agreement or
other arrangement or program providing for the advance of funds to such Person
against the pledge, contribution, sale or other transfer of encumbrances of
Receivables Program Assets of such Person or such Person and/or one or more of
its Subsidiaries.
"Receivables Program Assets" means all of the following property and
interests in property, whether now existing or existing in the future or
hereafter arising or acquired: (i) accounts, (ii) accounts receivable, general
intangibles, instruments, contract rights, documents and chattel paper
(including, without limitation, all rights to payment created by or arising from
sales of goods, leases of goods, or the rendition of services, no matter how
evidenced, whether or not earned by performance), (iii) all unpaid seller's or
lessor's rights (including, without limitation, rescission, replevin,
reclamation and stoppage in transit) relating to any of the foregoing or arising
therefrom, (iv) all rights to any goods or merchandise represented by any of the
foregoing (including, without limitation, returned or repossessed goods), (v)
all reserves and credit balances with respect to any such accounts receivable or
account debtors, (vi) all letters of credit, security or guarantees of any of
the foregoing, (vii) all insurance policies or reports relating to any of the
foregoing, (viii) all collection or deposit accounts relating to any of the
foregoing, (ix) all books and records relating to any of the foregoing, (x) all
instruments, contract rights, chattel paper, documents and general intangibles
related to any of the foregoing and (xi) all proceeds of any of the foregoing.
"Receivables Program Debt" means, with respect to any Person, the
unreturned portion of the amount funded by the investors under a Receivables
Program of such Person.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Senior Debt" means (i) all Debt of the Company outstanding under Credit
Facilities and all Hedging Obligations with respect thereto, (ii) any other Debt
permitted to be incurred by the Company under the terms of the Indenture, unless
the instrument under which such Debt is incurred expressly provides that it is
on a parity with or subordinated in right of payment to the Notes and (iii) all
Obligations with respect to the foregoing. Notwithstanding anything to the
contrary in the foregoing, Senior Debt will not include (w) any liability for
federal, state, local or other taxes owed or owing by the Company, (x) any Debt
of the Company to any of its Subsidiaries or other Affiliates, (y) any trade
payables or (z) any Debt that is incurred in violation of the Indenture.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Debt, the date on which such payment of interest or
principal was scheduled to be paid in the original documentation governing such
Debt, and shall not include any contingent obligations to repay, redeem or
repurchase any such interest or principal prior to the date originally scheduled
for the payment thereof.
"Subject Country" shall mean any jurisdiction other than the country of
Singapore and the United States of America, or any state thereof or the District
of Columbia.
"Subordinated Debt" means any Debt of the Company which is by its terms
subordinated in right of payment to the Notes.
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"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Total Assets" means, with respect to any date of determination, the total
assets of the Company shown on the Company's consolidated balance sheet in
accordance with GAAP on the last day of the fiscal quarter prior to the date of
determination.
"Voting Stock" of any Person means Capital Stock of such Person which
ordinarily has voting power for the election of directors (or persons performing
similar functions) of such Person, whether at all times or only so long as no
senior class of securities has such voting power by reason of any contingency.
"Weighted Average Life to Maturity" means, when applied to any Debt at any
date, the number of years obtained by dividing (i) the sum of the products
obtained by multiplying (a) the amount of each then remaining installment,
sinking fund, serial maturity or other required payments of principal, including
payment at final maturity, in respect thereof, by (b) the number of years
(calculated to the nearest one-twelfth) that will elapse between such date and
the making of such payment, by (ii) the then outstanding principal amount of
such Debt.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiaries of such Person.
PAYMENT OF ADDITIONAL AMOUNTS
The Indenture provides that any amounts paid, or caused to be paid, by the
Company or its assignee (or any successor to the Company or such assignee as
permitted under the Indenture) under the Indenture will be paid without
deduction or withholding for any and all present and future taxes, levies,
imposts or other governmental charges whatsoever imposed, assessed, levied or
collected by or for the account of Singapore (including any political
subdivision or taxing authority thereof) or the jurisdiction of incorporation or
residence (other than the United States or any political subdivision or taxing
authority thereof) of any assignee of the Company or any successor to the
Company, or any subsidiary, branch, division or other entity through which the
Company may from time to time direct any payments of principal, premium, if any,
and interest on the Notes or any political subdivision or taxing authority
thereof (an "Other Jurisdiction"), or, if deduction or withholding of any taxes,
levies, imposts or other governmental charges ("Taxes") shall at any time be
required by Singapore or an Other Jurisdiction, the Company, its assignee or any
relevant successor will (subject to timely compliance by the Holders or
beneficial owners of the relevant Notes with any relevant administrative
requirements) pay or cause to be paid such additional amounts ("Additional
Amounts") in respect of principal of, premium, if any, or interest, as may be
necessary in order that the net amounts paid to the Holders of the Notes or the
Trustee under the Indenture, as the case may be, pursuant to the Indenture,
after such deduction or withholding, shall equal the respective amounts that the
Holder would have received if such Taxes had not been withheld or deducted;
provided, however, that the foregoing shall not apply to (i) any present or
future Taxes which would not have been so imposed, assessed, levied or collected
but for the fact that the Holder or beneficial owner of the relevant Note is or
has been a domiciliary, national or resident of, engages or has been engaged in
business, maintains or has maintained a permanent establishment, or is or has
been physically present in Singapore or the Other Jurisdiction, or otherwise has
or has had some connection with Singapore or the Other Jurisdiction (other than
the holding or ownership of a Note, or the collection of principal of, premium,
if any, and interest on, or the enforcement of, a Note), (ii) any present or
future Taxes which would not have been so imposed, assessed, levied or collected
but for the fact that, where presentation is required, the relevant Note was
presented more than thirty days after the date such payment became due or
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was provided for, whichever is later, (iii) any present or future Taxes which
are payable otherwise than by deduction or withholding on or in respect of the
relevant Note, (iv) any present or future Taxes which would not have been so
imposed, assessed, levied or collected but for the failure to comply, on a
sufficiently timely basis, with any certification, identification or other
reporting requirements concerning the nationality, residence, identity or
connection with Singapore or the Other Jurisdiction or any other relevant
jurisdiction of the Holder or beneficial owner of the relevant Note, if such
compliance is required by a statute or regulation of Singapore, the Other
Jurisdiction or any other relevant jurisdiction, or by a relevant treaty, as a
condition to relief or exemption from such Taxes, (v) any present or future
Taxes (A) which would not have been so imposed, assessed, levied or collected if
the beneficial owner of the relevant Note had been the Holder of such Note, or
(B) which, if the beneficial owner of such Note had held the Note as the Holder
of such Note, would have been excluded pursuant to clauses (i) through (iv)
above, or (vi) any estate, inheritance, gift, sale, transfer, personal property
or similar tax, assessment or other governmental charge.
Notwithstanding the foregoing, the Indenture does not provide for the
payment of Additional Amounts due to any deduction or withholding requirement
imposed by any governmental unit other than Singapore, an Other Jurisdiction or
a taxing authority or political subdivision thereof.
All references herein to payments of principal of, premium, if any, and
interest on the Notes shall be deemed to include any applicable Additional
Amounts that may become payable in respect of the Notes.
RESTRICTIONS UPON REINCORPORATING, MERGING OR CONSOLIDATING INTO A SUBJECT
COUNTRY
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions (a "Subject
Transaction") to another corporation, Person or entity unless it satisfies
certain conditions. If the surviving or resulting transferee, lessee or
successor Person (the "Successor Corporation") in a Subject Transaction is
incorporated in a Subject Country, then the Company must satisfy the conditions
specified in paragraphs (A), (B) and (C) below as promptly as practicable but no
later than 60 days following the date of such Subject Transaction:
(A) the Company shall have delivered to the Trustee a written opinion,
in form and substance satisfactory to the Trustee, of independent legal
counsel of recognized standing, as to the continued validity, binding
effect and enforceability of the Indenture and the Notes and to the further
effect that such counsel is not aware of any pending change in, or
amendment to, the laws (or any regulations promulgated thereunder) of any
Subject Country in which the proposed Successor Corporation is incorporated
or maintains its principal place of business or principal executive office,
or any taxing authority thereof or therein, affecting taxation, or any
pending execution of or amendment to, or any pending change in application
of or official position regarding, any treaty or treaties affecting
taxation to which any such Subject Country is a party, which, in any such
case, would permit the Company to redeem the Notes as described above under
"Description of the Notes -- Redemption," it being understood that such
counsel may, in rendering such opinion, rely, to the extent appropriate, on
opinions of independent local counsel of recognized standing and the
Company may instead deliver two or more opinions of counsel which together
cover all of the foregoing matters;
(B) the Company shall have delivered to the Trustee a certificate, in
form and substance satisfactory to the Trustee, signed by two executive
officers of the Successor Corporation, as to the continued validity,
binding effect and enforceability of the Indenture and the Notes; and
(C) the Successor Corporation shall, promptly but no later than 60
days following the date of such Subject Transaction, consent to the
jurisdiction of the Courts of the State of New York.
In the event of any Subject Transaction in which the Successor Corporation
is organized and existing under the laws of a Subject Country, the Company will
indemnify and hold harmless the Holder of each Note from and against any and all
present and future taxes, levies, imposts, charges and withholdings (including,
without limitation, estate, inheritance, capital gains and other similar taxes),
and any and all present and future registration, stamp, issue, documentary or
other similar taxes, duties, fees or charges, imposed, assessed,
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levied or collected by or for the account of any jurisdiction or political
subdivision or taxing or other governmental agency or authority thereof or
therein on or in respect of the Notes, the Indenture or any other agreement
relating to calculations to be performed with respect to the Notes or any amount
paid or payable under any of the foregoing which, in any such case, would not
have been imposed had such Subject Transaction not occurred.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on the
Notes (whether or not prohibited by the subordination provisions of the
Indenture), (ii) default in payment when due of the principal of, or premium, if
any, on the Notes, (whether or not prohibited by the subordination provisions of
the Indenture), (iii) failure by the Company for 30 days after notice from
either the Trustee or the Holders of at least 25% in principal amount of the
then-outstanding Notes to comply with the provisions described under the
captions "-- Repurchase at the Option of Holders Upon Change of Control,"
"-- Certain Covenants -- Asset Sales," "-- Certain Covenants -- Restricted
Payments," "-- Certain Covenants -- Incurrence of Debt and Issuance of Preferred
Stock" or "-- Certain Covenants -- Merger, Consolidation or Sale of Assets";
(iv) failure by the Company for 60 days after notice from either the Trustee or
the Holders of at least 25% in principal amount of the then-outstanding Notes to
comply with any of its other agreements in the Indenture or the Notes; (v)
default under any mortgage, indenture or instrument under which there may be
issued or by which there may be secured or evidenced any Debt for money borrowed
by the Company or any of its Subsidiaries (or the payment of which is guaranteed
by the Company or any of its Subsidiaries) whether such Debt or guarantee now
exists, or is created after the date of the Indenture, which default (a) is
caused by a failure to pay principal of or premium, if any, or interest on such
Debt prior to the expiration of the grace period provided in such Debt on the
date of such default (a "Payment Default") or (b) results in the acceleration of
such Debt prior to its express maturity and, in each case, the principal amount
of any such Debt, together with the principal amount of any other such Debt the
maturity of which has been so accelerated, aggregates $10.0 million or more;
(vi) failure by the Company or any of its Subsidiaries to pay final judgments
aggregating in excess of $10.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; and (vi) certain events of bankruptcy or
insolvency with respect to the Company or any of its Significant Subsidiaries.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately. Notwithstanding the
foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to the Company, any Significant
Subsidiary or any group of Subsidiaries that, taken together, would constitute a
Significant Subsidiary, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, Holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes on October 15, 2002
pursuant to the optional redemption provisions of the Indenture, an equivalent
premium shall also become and be immediately due and payable to the extent
permitted by law upon the acceleration of the Notes. If an Event of Default
occurs prior to October 15, 2002 by reason of any willful action (or inaction)
taken (or not taken) by or on behalf of the Company with the intention of
avoiding the prohibition on redemption of the Notes prior to October 15, 2002,
then the premium specified in the Indenture shall also become immediately due
and payable to the extent permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its
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consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
All references herein to payments of principal of, premium, if any, and
interest on the Notes shall be deemed to include any applicable Additional
Amounts that may become payable in respect of the Notes.
MODIFICATION OF THE INDENTURE
Except as provided in the next paragraph, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then outstanding (including, without
limitation, consents obtained in connection with a purchase of, or tender offer
or exchange offer for, Notes), and any existing default or compliance with any
provision of the Indenture or the Notes may be waived with the consent of the
Holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter or waive the provisions with respect to the redemption of the Notes
(other than provisions relating to the covenants described above under the
caption "-- Repurchase at the Option of Holders Upon Change of Control"), (iii)
reduce the rate of or change the time for payment of interest, including default
interest, on any Note, (iv) waive a Default or Event of Default in the payment
of principal of or premium, if any, or interest on the Notes (except a
rescission of acceleration of the Notes by the Holders of at least a majority in
aggregate principal amount of the Notes and a waiver of the payment default that
resulted from such acceleration), (v) make any Note payable in money other than
that stated in the Notes, (vi) make any change in the provisions of the
Indenture relating to waivers of past Defaults or the rights of Holders of Notes
to receive payments of principal of or premium, if any, or interest on the
Notes, (vii) waive a redemption payment with respect to any Note (other than a
payment required by one of the covenants described above under the caption
"-- Repurchase at the Option of Holders Upon Change of Control") or (viii) make
any change in the foregoing amendment and waiver provisions. In addition, any
amendment or supplement to the provisions of Article 10 of the Indenture (which
relate to subordination) will require the consent of the Holders of at least 75%
in aggregate principal amount of the Notes then outstanding if such amendment
would adversely affect the rights of Holders of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
on such Notes when such payments are due from the trust referred to below, (ii)
the Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, bankruptcy, receivership, rehabilitation and insolvency
events) described under "Events of Default" will no longer constitute an Event
of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest on the outstanding Notes
on the stated maturity or on the applicable redemption date, as the case may be,
and the Company must specify whether the Notes are being defeased to maturity or
to a particular redemption date; (ii) in the case of Legal Defeasance, the
Company shall have delivered to the Trustee an opinion of counsel in the United
States reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and based
thereon such opinion of counsel shall confirm that, the Holders of the
outstanding Notes will not recognize income, gain or loss for federal income tax
purposes as a result of such Legal Defeasance and will be subject to federal
income tax on the same amounts, in the same manner and at the same times as
would have been the case if such Legal Defeasance had not occurred; (iii) in the
case of Covenant Defeasance, the Company shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders of the outstanding Notes will not recognize income,
gain or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same amounts, in the
same manner and at the same times as would have been the case if such Covenant
Defeasance had not occurred; (iv) no Default or Event of Default shall have
occurred and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to such
deposit) or insofar as Events of Default from bankruptcy or insolvency events
are concerned, at any time in the period ending on the 91st day after the date
of deposit; (v) such Legal Defeasance or Covenant Defeasance will not result in
a breach or violation of, or constitute a default under, any material agreement
or instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that on and after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company or
with the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
GOVERNING LAW
The Indenture, the Notes and the Registration Rights Agreement will be
governed by, and construed in accordance with, the laws of the State of New
York, without giving effect to the conflicts of law principles thereof.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture and
the Registration Rights Agreement without charge by writing to Flextronics
International Ltd., Investor Relations, 2090 Fortune Drive, San Jose, California
95131 (telephone (408) 428-1300).
FORM, DENOMINATION, BOOK-ENTRY PROCEDURES AND TRANSFER
General.
Notes will be issued only in fully registered form, without interest
coupons, in minimum denominations of $1,000 and integral multiples thereof,
provided that initial purchasers of Other Notes will be subject to a minimum
initial purchase obligation of $100,000 for each such purchaser. Notes will be
issued at the closing of the Offering (the "Closing") only against payment in
immediately available funds.
Except as set forth in the next paragraph, the Notes to be resold as set
forth herein will initially be issued in the form of one Global Note (the
"Global Note"). The Global Note will be deposited on the date of the closing of
the sale of the Notes offered hereby (the "Closing Date") with, or on behalf of,
The Depository Trust Company (the "Depository") and registered in the name of
Cede & Co., as nominee of the Depository (such nominee being referred to herein
as the "Global Note Holder").
Notes that are (i) originally issued to Institutional Accredited Investors
who are not QIBs or (ii) issued as described below under "-- Certificated
Securities" will be issued in the form of registered definitive certificates
(the "Certificated Securities"). Upon the transfer of Certificated Securities,
such Certificated
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Securities may, unless the Global Note has previously been exchanged for
Certificated Securities, be exchanged for an interest in the Global Note
representing the principal amount of Notes being transferred.
The Depository is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depository's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depository's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depository's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depository only thorough the Depository's
Participants or the Depository's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Note, the Depository will credit the
accounts of Participants designated by the applicable Initial Purchaser with
portions of the principal amount of the Global Note and (ii) ownership of the
Notes evidenced by the Global Note will be shown on, and the transfer of
ownership thereof will be effected only through, records maintained by the
Depository (with respect to the interests of the Depository's Participants), the
Depository's Participants and the Depository's Indirect Participants.
Prospective purchasers are advised that the laws of some states require that
certain persons take physical delivery in definitive form of securities that
they own. Consequently, the ability to transfer Notes evidenced by the Global
Note will be limited to such extent. For certain other restrictions on the
transferability of the Notes, see the restrictions set forth on the cover page
and on the inside front cover of this Prospectus.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the
Global Note will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depository or for maintaining, supervising or reviewing
any records of the Depository relating to the Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of the Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of the Global
Note Holder in its capacity as the registered Holder under the Indenture. Under
the terms of the Indenture, the Company and the Trustee may treat the persons in
whose names Notes, including the Global Note, are registered as the owners
thereof for the purpose of receiving such payments. Consequently, neither the
Company nor the Trustee has or will have any responsibility or liability for the
payment of such amounts to beneficial owners of Notes. The Company believes,
however, that it is currently the policy of the Depository to immediately credit
the accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depository. Payments by the
Depository's Participants and the Depository's Indirect Participants to the
beneficial owners of Notes will be governed by standing instructions and
customary practice and will be the responsibility of the Depository's
Participants or the Depository's Indirect Participants.
Certificated Securities.
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Securities. Upon any such
issuance, the Trustee is required to register such Certificated Securities in
the name of, and cause the same to be delivered to, such person or persons (or
the nominee of any thereof). All such certificated Notes would be subject to the
legend requirements described on the cover page and on the inside front cover
page herein. In addition, if (i) the Company notifies the Trustee in writing
that the Depository is no longer willing or able to act as a depository and the
Company is unable to locate a qualified successor within 90 days or
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(ii) the Company, at its option, notifies the Trustee in writing that it elects
to cause the issuance of Notes in the form of Certificated Securities under the
Indenture, then, upon surrender by the Global Note Holder of its Global Note,
Notes in such form will be issued to each person that the Global Note Holder and
the Depository identify as being the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depository in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depository for all purposes.
Next Day Settlement and Payment.
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, if any, and interest) be made by
wire transfer of immediately available next day funds to the accounts specified
by the Global Note Holder. With respect to Certificated Securities, the Company
will make all payments of principal, premium, if any, and interest, if any, by
wire transfer of immediately available next day funds to the accounts specified
by the Holders thereof or, if no such account is specified, by mailing a check
to each such Holder's registered address. The Company expects that secondary
trading in the Certificated Securities will also be settled in immediately
available funds.
CERTAIN TAX CONSIDERATIONS
THIS SUMMARY IS OF A GENERAL NATURE AND IS INCLUDED HEREIN SOLELY FOR
INFORMATIONAL PURPOSES. IT IS NOT INTENDED TO BE, NOR SHOULD IT BE CONSTRUED AS
BEING, LEGAL OR TAX ADVICE. NO REPRESENTATION WITH RESPECT TO THE CONSEQUENCES
TO ANY PARTICULAR PURCHASER OF THE NOTES IS MADE. PROSPECTIVE PURCHASERS SHOULD
CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THEIR PARTICULAR CIRCUMSTANCES
AND THE EFFECTS OF STATE, LOCAL OR FOREIGN (INCLUDING SINGAPORE AND BERMUDA) TAX
LAWS TO WHICH THEY MAY BE SUBJECT.
U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following statements represent a general summary of certain United
States federal income tax consequences of the acquisition, ownership and
disposition of the Notes to initial purchasers who are United States citizens or
residents, corporations or partnerships or other entities created or organized
in or under the laws of the United States or any state thereof, an estate the
income of which is subject to United States federal income taxation regardless
of its source, or a trust if a United States court is able to exercise primary
supervision over its administration and one or more United States persons have
the authority to control all of its substantial decisions (for purposes of this
discussion, "U.S. Holders"), and who hold their beneficial interests in the
Notes as capital assets. This discussion is based upon the provisions of the
United States Internal Revenue Code of 1986, as amended (the "Code"),
regulations, rulings and judicial interpretations now in effect, all of which
are subject to change, possibly with retroactive effect. The summary does not
purport to deal with all aspects of United States federal income tax
consequences and does not deal with purchasers who are not U.S. Holders or with
certain classes of U.S. Holders subject to special treatment under United States
federal income tax law, nor does it discuss any aspects of state, local or
foreign tax law. In addition, because tax consequences may differ depending on
individual circumstances, each prospective purchaser of the Notes is strongly
urged to consult his own tax advisor with respect to his particular tax
situation.
Taxation of Interest
Interest paid on a Note generally will be includible in the income of a
U.S. Holder in accordance with the U.S. Holder's regular method of tax
accounting. If Additional Amounts are paid, such payment will be taxable as
ordinary income in accordance with the U.S. Holder's regular method of tax
accounting. Interest and any
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Additional Amounts will be income from sources outside the United States for
foreign tax credit limitation purposes. Subject to generally applicable
limitations, a U.S. Holder may elect to claim either a deduction or foreign tax
credit in computing its U.S. federal income tax liability for Singapore
withholding taxes, if any, withheld from interest paid on the Note.
Taxation of Dispositions
A U.S. Holder will recognize gain or loss for U.S. federal income tax
purposes upon the sale or other disposition of the Notes in an amount equal to
the difference between the amount realized (other than accrued but unpaid
interest) and the U.S. Holder's tax basis in the Notes. Assuming that the U.S.
Holder has held the Notes as a capital asset, such gain or loss will be capital
gain or loss and will not be short-term capital gain or loss if the Notes have
been held for more than one year. Long-term capital gain realized by an
individual U.S. Holder is generally subject to a maximum tax rate of 28% in
respect of property held for more than one year and not more than 18 months and
to a maximum rate of 20% in respect of property held in excess of 18 months.
Gain generally will be income from U.S. sources for foreign tax credit
limitation purposes. Loss may be treated as foreign source loss by reference to
the source of interest on the Notes. If a U.S. Holder receives any foreign
currency on the sale, redemption or other taxable disposition of Notes, the
holder may recognize ordinary gain or loss due to the currency exchange
fluctuation.
Taxation of Exchange
The exchange of the Old Notes for the New Notes pursuant to the Exchange
Offer will not be treated as an "exchange" for federal income tax purposes
because the New Notes do not differ materially in either kind or extent from the
Old Notes and because the exchange will occur by operation of the terms of the
Old Notes. Rather, the New Notes received by a holder will be treated as a
continuation of the Old Notes in the hands of the holder. As a result, there
generally will be no federal income tax consequences to holders exchange Old
Notes for the New Notes pursuant to the Exchange Offer. In addition, any "market
discount" on the Old Notes should carry over to the New Notes. Holders should
consult their tax advisors regarding the application of the market discount
rules to the New Notes received in exchange for the Old Notes pursuant to the
Exchange Offer.
Information Reporting and Backup Withholding
Payments in respect of Notes (i.e. interest and proceeds from the sale of
the Notes) may be subject to information reporting to the U.S. Internal Revenue
Service and to a 31% U.S. backup withholding tax. Backup withholding will
generally not apply, however, to a holder who furnishes a correct taxpayer
identification number or who is otherwise exempt from backup withholding (such
as a corporation). Generally, a U.S. Holder will provide such certification on
Form W-9 (Request for Taxpayer Identification Number and Certification).
SINGAPORE TAX CONSIDERATIONS
The following summary addresses only the income tax laws of the Republic of
Singapore in force and effect as of the date hereof and is intended as a general
guide only.
Withholding Tax
Subject to the provisions of any applicable tax treaty (there is currently
no tax treaty between Singapore and the United States), non-resident taxpayers,
namely individuals not residing in or corporations not managed and controlled in
Singapore, which derive interest income from Singapore, are subject to a
withholding tax on that income at a rate of 15%, subject to certain exceptions.
Where the Singapore payer is to bear the withholding tax on the gross payment
(where there is no deduction for withholding tax) made to the non-resident the
Singapore withholding tax is payable on the grossed up amount of the payment.
Payments of principal on the redemption of the Notes will not be subject to
withholding tax in Singapore.
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The interest payments made by the Company under the Notes will not be
subject to withholding tax in Singapore if the Company has a branch office in a
foreign country, the Company makes interest payments on the Notes through such
branch office and none of the proceeds of the Notes are used in Singapore. The
Company intends to make interest payments through its branch office in Bermuda.
Accordingly, interest paid on the Notes will not be subject to withholding tax
in Singapore, as long as the interest payments are made through the branch
office and the proceeds are not used in Singapore.
Capital Gains Tax
Under current Singapore tax law, there is no tax on capital gains.
(However, gains from short-term real property transactions and sales of shares
in certain real property based companies may be subject to income tax in
Singapore.) Thus, any profits from the disposal of the Notes are not taxable in
Singapore unless the seller is regarded as carrying on a trade in securities
dealings in Singapore (in which case, the disposal profits would be treated as
taxable trading profits rather than capital gains and taxed at 26%).
Stamp Duties
There is no stamp duty payable in respect of the holding and disposition of
the Notes issued by the Company where the Notes are issued through the foreign
branch of the Company and such Notes are not brought into Singapore.
Estate Taxation
In the case of an individual who is not domiciled in Singapore, a Singapore
estate tax is imposed on the value of all movable and immovable properties
situated in Singapore. The Notes issued by the Company are considered to be
situated outside Singapore, if the Notes are issued through a foreign branch of
the Company and not brought into Singapore. Thus, an individual shareholder who
is not domiciled in Singapore at the time of his or her death will not be
subject to Singapore estate tax on the value of any such Notes held by the
individual upon the individual's death.
Taxation of Exchange
The exchange of the Old Notes for the New Notes pursuant to the Exchange
Offer will not be treated as a taxable exchange for Singapore tax purposes.
BERMUDA TAX CONSIDERATIONS
Under current Bermuda law, there is no Bermuda income tax, withholding tax,
capital gains tax or capital transfer tax payable by companies incorporated
outside of Bermuda which are issued a permit by the Minister of Finance of
Bermuda to engage in or carry on any trade or business in Bermuda ("Permit
Company"). The Company has obtained a permit from the Minister of Finance of
Bermuda to engage in or carry on business in Bermuda. Permit companies can
obtain an undertaking from the Minister of Finance of Bermuda under The Exempted
Undertakings Tax Protection Act 1966 of Bermuda (as amended) that, in the event
of there being enacted in Bermuda any legislation imposing tax computed on
profits or income, or computed on any capital asset, gain or appreciation, or
any tax in the nature of estate duty or inheritance tax, such tax shall not,
until March 28, 2016, be applicable to such company or any of its operations, or
to the shares or other obligations of such company or its subsidiaries, except
insofar as such Bermuda tax applies to persons ordinarily resident in Bermuda
and holding shares, debentures or other obligations of such company or to any
property leased or let to such company. The Company has obtained such an
undertaking from the Minister of Finance of Bermuda.
95
<PAGE> 97
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by a
broker-dealer in connection with resales of New Notes received in exchange for
Old Notes where the Old Notes were acquired as a result of market-making
activities or other trading activities.
The Company will receive no proceeds in connection with the Exchange Offer.
New Notes received by broker-dealers for their own account pursuant to the
Exchange Offer may be sold from time to time in one or more transactions in the
over-the-counter market, in negotiated transactions, through the writing of
options on the New Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or through brokers or dealers who may receive compensation in the
form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such New Notes. Any broker-dealer that resells New Notes that
were received by it for its own account pursuant to the Exchange Offer and any
broker or dealer that participates in a distribution of such New Notes may be
deemed to be an "underwriter" within the meaning of the Securities Act, and any
profit on any such resale of New Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The Letter of Transmittal states that by acknowledging that
it will deliver, and by delivering, a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the Securities
Act. The Company has agreed to indemnify such broker-dealers against certain
liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the Notes offered hereby has been passed upon on behalf of
the Company by Allen & Gledhill, Singapore legal advisors to the Company.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Flextronics as of March 31, 1996
and 1997 and for each of the three years in the period ended March 31, 1997
included in this Prospectus have been audited by Arthur Andersen LLP,
independent accountants, as set forth in their report thereon included herein.
96
<PAGE> 98
FLEXTRONICS INTERNATIONAL LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................... F-2
Report of Independent Auditors.............................. F-3
Flextronics International Ltd. Consolidated Balance Sheets
as of March 31, 1996 and 1997............................. F-4
Flextronics International Ltd. Consolidated Statements of
Operations for the fiscal years ended March 31, 1995, 1996
and 1997.................................................. F-5
Flextronics International Ltd. Consolidated Statements of
Shareholders' Equity for the fiscal years ended March 31,
1995, 1996 and 1997....................................... F-6
Flextronics International Ltd. Consolidated Statements of
Cash Flows for the fiscal years ended March 31, 1995, 1996
and 1997.................................................. F-7
Notes to Consolidated Financial Statements.................. F-8
Flextronics International Ltd. Condensed Consolidated
Balance Sheets as of March 31, 1997 and December 31, 1997
(unaudited)............................................... F-28
Flextronics International Ltd. Condensed Consolidated
Statements of Income for the three and nine months ended
December 31, 1996 and 1997 (unaudited).................... F-29
Flextronics International Ltd. Condensed Consolidated
Statements of Cash Flows for the nine months ended
December 31, 1996 and 1997 (unaudited).................... F-30
Notes to Condensed Consolidated Financial Statements
(unaudited)............................................... F-31
</TABLE>
F-1
<PAGE> 99
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Flextronics International Ltd:
We have audited the accompanying consolidated balance sheets of Flextronics
International Ltd. and subsidiaries (a Singapore company) 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. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits. We did not audit the financial statements of
Neutronics Electronics Industries Holding A.G., a company acquired on October
30, 1997 in a transaction accounted for as a pooling of interests, as discussed
in Note 2. Such statements are included in the consolidated financial statements
of Flextronics International Ltd. and reflect total assets of 25 percent and 20
percent, respectively, of the consolidated totals as of March 31, 1996 and 1997
and total revenues of 19 percent, 22 percent and 23 percent, respectively, of
the consolidated totals for the years ended March 31, 1995, 1996 and 1997. These
statements were audited by other auditors whose report has been furnished to us
and our opinion, insofar as it relates to amounts included for Neutronics
Electronics Industries Holding A.G., is based solely upon the report of the
other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material respects,
the financial position of Flextronics International Ltd. and subsidiaries as of
March 31, 1996 and 1997, and the results of their operations and their cash
flows for each of the three years in the period ended March 31, 1997, in
conformity with generally accepted accounting principles.
Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed under Item 14(a)2 is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
San Jose, California
February 13, 1998
F-2
<PAGE> 100
REPORT OF INDEPENDENT AUDITORS
The Management and Supervisory Boards and Shareholders at
Neutronics Electronic Industries Holding A.G.
We have audited the accompanying consolidated balance sheets (not presented
herein) of Neutronics Electronic Industries Holdings A.G. and its subsidiaries
(the 'Group') as at December 31, 1996, 1995 and 1994 and the related
consolidated statements of operations, shareholders' equity and cash flows for
the periods then ended (not presented herein). These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audit.
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 (not presented
herein) present fairly, in all material respects the financial position of the
Group as at December 31, 1996, 1995 and 1994, and the results of its operations
and its cash flows for the periods then ended in conformity with United States
Generally Accepted Accounting Principles.
/s/ MOORE STEPHENS
Moore Stephens
Registered Auditors
St. Paul's House
Warwick Lane
London EC4P 4BN.
Friday 13th February 1998
F-3
<PAGE> 101
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
MARCH 31
---------------------
1996 1997
-------- --------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 8,647 $ 24,159
Accounts receivable, less allowances of $3,766 and $6,072.......... 97,274 87,507
Inventories........................................................ 65,945 124,362
Deferred tax asset................................................. 2,908 3,049
Other current assets............................................... 7,522 15,319
-------- --------
Total current assets....................................... 182,296 254,396
Property and equipment, net.......................................... 91,792 149,015
Goodwill and other intangibles, net.................................. 28,121 33,506
Related party receivables............................................ 2,085 2,554
Other assets......................................................... 4,973 6,821
-------- --------
Total assets............................................... $309,267 $446,292
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank borrowings and current portion of long-term debt.............. $ 37,532 $128,515
Capital lease obligations.......................................... 7,140 8,273
Accounts payable................................................... 86,532 97,917
Accrued liabilities and other...................................... 25,200 47,344
Payables to associated company..................................... -- 546
Deferred revenue................................................... 365 2,046
-------- --------
Total current liabilities.................................. 156,769 284,641
-------- --------
Long-term debt, net of current portion............................... 18,405 9,029
Capital lease obligations, net of current portion.................... 13,489 20,099
Deferred income taxes................................................ 4,353 3,710
Other long-term liabilities.......................................... 29,482 28,326
Minority interest.................................................... 1,198 1,142
-------- --------
Commitments (Note 6)
SHAREHOLDERS' EQUITY:
Ordinary Shares, S$.01 par value; Authorized -- 100,000,000 shares;
issued and outstanding -- 16,019,289 and 16,482,243 as of March
31, 1996 and 1997, respectively................................. 104 107
Additional paid-in capital.................................... 104,620 106,556
Accumulated deficit................................................ (19,659) (7,020)
Cumulative translation adjustment.................................. 506 (298)
-------- --------
Total shareholders' equity................................. 85,571 99,345
-------- --------
Total liabilities and shareholders' equity................. $309,267 $446,292
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 102
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Net Sales................................................ $292,149 $572,045 $640,007
Cost of Sales............................................ 265,426 517,732 575,142
-------- -------- --------
Gross margin................................... 26,723 54,313 64,865
-------- -------- --------
Operating Expenses:
Selling, general and administrative.................... 15,771 28,138 36,277
Goodwill and intangibles amortization.................. 762 1,296 2,648
Provision for plant closings........................... -- 1,254 5,868
Acquired in-process research and development........... 91 29,000 --
-------- -------- --------
Total operating expenses....................... 16,624 59,688 44,793
-------- -------- --------
Income(loss) from operations............................. 10,099 (5,375) 20,072
Other Expense:
Merger-related expenses................................ (816) -- --
Other expense, net..................................... (1,814) (4,924) (6,425)
-------- -------- --------
Income(loss) before income taxes 7,469 (10,299) 13,647
Provision for Income Taxes............................... 1,588 3,847 2,027
-------- -------- --------
Net income(loss)......................................... $ 5,881 $(14,146) $ 11,620
======== ======== ========
Basic net income (loss) per share................... $ 0.42 $ (0.92) $ 0.69
======== ======== ========
Diluted net income (loss) per share................. $ 0.40 $ (0.92) $ 0.67
======== ======== ========
Weighted average Ordinary Shares
outstanding -- basic.............................. 14,143 15,436 16,785
======== ======== ========
Weighted average Ordinary Shares and equivalents
outstanding -- diluted............................ 14,882 15,436 17,363
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 103
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
ORDINARY SHARES ADDITIONAL CUMULATIVE TOTAL
--------------- PAID-IN ACCUMULATED TRANSLATION SHAREHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT EQUITY
------ ------ ----------- ----------- ----------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1994.......... 14,110 $ 90 $ 73,911 $ (10,798) $ -- $ 63,203
NCHIP fiscal year conversion..... -- -- -- (596) -- (596)
Expenses related to issuance of
Ordinary Shares............... -- -- (968) -- -- (968)
Exercise of stock options........ 300 2 925 -- -- 927
Net income....................... -- -- -- 5,881 -- 5,881
Foreign exchange loss............ -- -- -- -- (12) (12)
------ ---- -------- -------- ----- -------
BALANCE AT MARCH 31, 1995.......... 14,410 92 73,868 (5,513) (12) 68,435
Issuance of Ordinary Shares for
acquisition of A&A............ 67 -- 938 -- -- 938
Issuance of Ordinary Shares for
acquisition of Astron......... 238 2 6,505 -- -- 6,507
Exercise of stock options........ 304 2 1,007 -- -- 1,009
Sale of shares in public
offering, net of $1,190 in
offering costs................ 1,000 8 22,302 -- -- 22,310
Net loss......................... -- -- -- (14,146) -- (14,146)
Foreign exchange gain............ -- -- -- -- 518 518
------ ---- -------- -------- ----- -------
BALANCE AT MARCH 31, 1996.......... 16,019 104 104,620 (19,659) 506 85,571
Issuance of Ordinary Shares for
Acquisition of Fine Line...... 223 1 196 1,019 -- 1,216
Exercise of stock options........ 240 2 1,740 -- -- 1,742
Net income....................... -- -- -- 11,620 -- 11,620
Foreign exchange loss............ -- -- -- -- (804) (804)
------ ---- -------- -------- ----- -------
BALANCE AT MARCH 31, 1997.......... 16,482 $107 $ 106,556 $ (7,020) $(298) $ 99,345
====== ==== ======== ======== ===== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 104
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31,
----------------------------------
1995 1996 1997
------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................ $ 5,881 $(14,146) $ 11,620
Adjustments to reconcile net income (loss) to net cash
provided by (used in) from operating activities:
nCHIP fiscal year conversion.......................... (596) -- --
Depreciation and amortization......................... 7,183 13,864 18,140
Gain on sale of subsidiary............................ -- -- (1,027)
Allowances for receivables and inventories............ 1,254 3,496 7,319
(Income) loss from associated company................. 729 -- (133)
In-process research and development................... 91 29,000 --
Provision for plant closure........................... -- 1,254 5,308
Minority interest expense and other expenses.......... 67 346 1,302
Changes in operating assets and liabilities (net of
effect of acquisitions):
Accounts receivable.............................. (23,409) (28,957) 4,290
Inventories...................................... (13,415) (19,553) (8,400)
Other Current Assets............................. (3,341) 2,126 (10,581)
Accounts payable, accrued liabilities and
other.......................................... 19,945 14,677 25,719
Deferred revenue................................. 2 171 1,788
Deferred income taxes............................ 366 140 (976)
-------- -------- --------
Net cash provided by (used in) operating activities........ (5,243) 2,418 54,369
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment...................... (21,848) (23,520) (37,503)
Proceeds from sale of property and equipment............. 77 630 4,827
Proceeds from sale of subsidiaries....................... 2,937 -- 1,012
Investment in associated company......................... (828) (1,408) (3,116)
Other investments........................................ -- (1,192) (25)
Loan to joint venture.................................... (1,000) -- --
Redemption of joint venture preference shares............ 1,730 -- --
Net cash paid for acquired businesses.................... (3,343) (15,152) (82,354)
Repayments from (loans to) related party................. -- 815 (469)
-------- -------- --------
Net cash used in investing activities...................... (22,275) (39,827) (117,628)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank borrowings and long-term debt....................... 18,257 56,944 160,940
Repayment of bank borrowings and long-term debt.......... (17,296) (34,069) (63,957)
Borrowings from (payments to) related company............ 10,843 (6,440) (4,403)
Equipment refinanced under capital leases................ -- -- 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)
Net proceeds from secondary offering..................... -- 22,310 --
-------- -------- --------
Net cash provided by financing activities.................. 10,413 33,970 78,997
-------- -------- --------
Effect of exchange rate changes............................ 49 (70) (226)
-------- -------- --------
Increase (decrease) in cash and cash equivalents........... (17,056) (3,509) 15,512
Cash and cash equivalents, beginning of period............. 29,212 12,156 8,647
-------- -------- --------
Cash and cash equivalents, end of period................... $12,156 $ 8,647 $ 24,159
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE> 105
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. ORGANIZATION OF THE COMPANY
Flextronics International Ltd. ("Flextronics" or the "Company") was
incorporated in the Republic of Singapore on May 31, 1990 as Flex Holdings Pte
Limited. Flextronics 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, plastic injection
molding, 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 surface mount ("SMT"), multichip modules ("MCM") and chip-on-board
("COB") technologies.
2. SUMMARY OF ACCOUNTING POLICIES
Principles of consolidation and basis of presentation
The accompanying consolidated financial statements include the accounts of
Flextronics and its wholly and majority-owned subsidiaries, after elimination of
all significant intercompany accounts and transactions.
As is more fully described in Note 11, Flextronics merged with Neutronics
Electronics Industries Holding A.G. ("Neutronics") on October 30, 1997. The
merger was accounted for as a pooling-of-interests and the consolidated
financial statements have been restated to reflect the combined operations of
Neutronics and Flextronics for all periods presented.
Neutronics has a calendar year end, and accordingly, Neutronics' statements
of operations, shareholders' equity and cash flows for the period from inception
(July 1, 1994) to December 31, 1994 and for the years ended December 31, 1995
and 1996 have been combined with the corresponding Flextronics statements for
the fiscal years ended March 31, 1995, 1996 and 1997, respectively. Neutronics'
balance sheets as of December 31, 1995 and 1996 have been combined with
Flextronics' balance sheets as of March 31, 1996 and 1997, respectively.
All dollar amounts included in the financial statements are expressed in
U.S. dollars unless otherwise designated as Singapore dollars (S$).
The Company's fiscal year ends on March 31.
Translation of Foreign Currencies
The functional currency of the majority of Flextronics' Asian subsidiaries
and certain other subsidiaries is the U.S. dollar. Accordingly, all of the
monetary assets and liabilities of these subsidiaries are remeasured into U.S.
dollars at the current exchange rate as of the applicable balance sheet date,
and all non-monetary assets and liabilities are remeasured at historical rates.
Revenues and expenses are remeasured at the average exchange rate prevailing
during the period. Gains and losses resulting from the remeasurement of these
subsidiaries' financial statements are included in the accompany consolidated
statements of operations.
The financial position and results of operations of the Company's Swedish,
UK, Austrian and Hungarian subsidiaries are measured using local currency as the
functional currency. Accordingly, for these subsidiaries all assets and
liabilities are translated into U.S. dollars at current exchange rates as of the
respective balance sheet date. Revenue and expense items are translated at the
average exchange rates prevailing during the period. Cumulative translation
gains and losses from the remeasurement of these subsidiaries' financial
statements are reported as a separate component of shareholders' equity.
F-8
<PAGE> 106
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Gains (losses) from foreign exchange transactions were $(708), $(638) and
$1,165 in fiscal 1995, 1996 and 1997, respectively, and are included in other
income and expense in the accompanying consolidated statements of operations.
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 ten years, with the exception of building leasehold improvements,
which are amortized over the life of the lease). Property and equipment was
comprised of the following as of March 31:
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Machinery and equipment.................................. $ 91,697 $120,743
Buildings................................................ 21,907 54,101
Leasehold improvements................................... 20,332 22,970
-------- --------
133,936 197,814
Accumulated depreciation and amortization................ (42,144) (48,799)
-------- --------
Property and equipment, net.............................. $ 91,792 $149,015
======== ========
</TABLE>
Concentration of credit risk
Financial instruments which potentially subject the Company to
concentration credit risk are primarily accounts receivable and cash
equivalents. The Company performs ongoing credit evaluations of its customers'
financial condition and maintains an allowance for doubtful accounts based on
the outcome of its credit evaluations. The Company maintains cash and cash
equivalents with various financial institutions. These financial institutions
are located in many different locations throughout the world.
Sales to customers who accounted for more than 10% of net sales were as
follows for the years ended March 31:
<TABLE>
<CAPTION>
1995 1996 1997
---- ---- ----
<S> <C> <C> <C>
Philips Electronics Group (see Note 10)................ 16.1% 17.8% 18.8%
Lifescan............................................... 16.3 11.1 10.2
Visioneer.............................................. 1.4 10.3 5.4
</TABLE>
During fiscal 1995, 1996 and 1997, Philips Electronics Group ("Philips")
held a significant ownership interest in Neutronics (see Note 11). Sales to
Philips, which are included in net sales in the accompanying consolidated
statements of operations, totaled $47 million, $102 million, and $120 million
for fiscal 1995, 1996 and 1997, respectively. Neutronics also purchased raw
materials from Philips totaling $7 million, $9 million and $30 million for
fiscal 1995, 1996 and 1997, respectively.
In addition, Neutronics received an interest free loan from Philips in
fiscal 1994 of $10.8 million which was fully repaid by fiscal 1997.
Goodwill and other intangibles
Excess of cost over net assets acquired (goodwill) is amortized by the
straight-line method over estimated lives ranging from ten to twenty-five years.
The realizability of goodwill is evaluated periodically as events or
circumstances indicate a possible inability to recover its carrying amount. Such
evaluation is based on various analyses, including cash flow and profitability
projections that incorporate, as applicable, the impact
F-9
<PAGE> 107
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
on existing lines of business. The analyses involves a significant level of
management judgment in order to evaluate the ability of an acquired business to
perform within projections.
Intangible assets are comprised of technical agreements, patents,
trademarks, developed technologies and other acquired intangible assets
including assembled work forces, favorable leases and customer lists. Technical
agreements are being amortized on a straight-line basis over periods of up to
five years. Patents and trademarks are being amortized on a straight-line basis
over periods of up to ten years. Purchased developed technologies are being
amortized on a straight-line basis over periods of up to seven years. Intangible
assets related to assembled work forces, favorable leases and customer lists are
amortized on a straight-line basis over three to twenty years.
Goodwill and other intangibles were as follows as of March 31:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Goodwill................................................ $18,176 $ 26,483
Other intangibles....................................... 13,938 13,964
-------- --------
32,114 40,447
Accumulated amortization................................ (3,993) (6,941)
-------- --------
Goodwill and other intangibles, net..................... $28,121 $ 33,506
======== ========
</TABLE>
Long-Lived Assets
Effective December 1995 the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This
statement requires that long-lived assets and certain identifiable intangibles
to be held and used or disposed of by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable.
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 reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out basis) or
market value. Cost is comprised of direct materials, labor and overhead. As of
March 31, the components of inventories are as follows:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Raw materials........................................... $48,403 $ 80,010
Work-in-process......................................... 16,107 16,665
Finished goods.......................................... 1,435 27,687
------- --------
$65,945 $124,362
======= ========
</TABLE>
F-10
<PAGE> 108
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Accrued liabilities
Accrued liabilities was comprised of the following as of March 31:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Income taxes............................................ $ 2,775 $ 4,171
Accrued payroll......................................... 11,341 15,443
Purchase price payable to Astron and FICO (See Note
11)................................................... -- 8,450
Other accrued liabilities............................... 11,084 19,280
------- -------
$25,200 $ 47,344
======= =======
</TABLE>
Revenue recognition
The Company's net sales are comprised of product sales and service revenue
earned from engineering and design services. Revenue from product sales is
recognized upon shipment of the goods. Service revenue is recognized as the
services are performed, or under the percentage-of-completion method of
accounting, depending on the nature of the arrangement. If total costs to
complete a project exceed the anticipated revenue from that project, the loss is
recognized immediately.
Research and development
Research and development costs arise from the Company's efforts to develop
new manufacturing processes and technologies and are expensed as incurred. Cost
of sales included research and development costs of approximately $153 and $913
in fiscal 1996 and 1997, respectively.
Other income and expense
In March 1997, the Company incurred bank commitment fees of $750 which were
related to a proposed $100 million credit facility. This proposed credit
facility was not consummated, and the bank's commitment expired unused at the
end of March 1997. Accordingly, such fees were included in other expense in the
fiscal 1997 statement of operations.
Other income and expense was comprised of the following for the years ended
March 31:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Interest expense................................. $1,166 $4,286 $6,426
Interest income.................................. (407) (756) (706)
Foreign exchange (gain) loss..................... 708 638 (1,665)
(Income) loss from associated company............ 729 -- (133)
Permanent impairment in investment............... -- -- 3,200
Bank commitment fees............................. -- -- 750
Gain on sale of subsidiary....................... -- -- (1,027)
Minority interest................................ 26 103 394
Other, net....................................... (408) 653 (814)
------ ------ ------
Total other expense, net............... $1,814 $4,924 $6,425
====== ====== ======
</TABLE>
Net income per share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings per Share," which is required to be adopted for interim and
annual periods ending after December 15, 1997. Restatement of all prior periods
in accordance with the new method proscribed by SFAS No. 128 is required
F-11
<PAGE> 109
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
upon adoption; accordingly, the Company has calculated net income per share in
accordance with SFAS No. 128.
Basic net income per share is computed using the weighted average number of
Ordinary Shares outstanding during the applicable periods.
Diluted net income per share is computed using the weighted average number
of Ordinary Shares and dilutive Ordinary Share equivalents outstanding during
the applicable periods. Ordinary Share equivalents include Ordinary Shares
issuable upon the exercise of stock options and are computed using the treasury
stock method.
Reconciliation between basic and diluted earnings per share is as follows
for the fiscal years ended March 31 (in thousands, except per share data):
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- -------
<S> <C> <C> <C>
Ordinary Shares issued and outstanding(1)................ 14,143 15,342 16,219
Ordinary Shares due to Astron(2)......................... -- 94 566
------ -------- -------
Weighted average Ordinary Shares -- basic................ 14,143 15,436 16,785
Ordinary Share equivalents -- stock options(3)........... 739 -- 578
------ -------- -------
Weighted average Ordinary Shares and
equivalents -- diluted................................. 14,882 15,436 17,363
====== ======== =======
Net income (loss)........................................ $ 5,881 $(14,146) $11,620
====== ======== =======
Basic net income (loss) per share........................ $ 0.42 $ (0.92) $ 0.69
====== ======== =======
Diluted net income (loss) per share...................... $ 0.40 $ (0.92) $ 0.67
====== ======== =======
</TABLE>
- ---------------
(1) Ordinary Shares issued and outstanding based on the weighted average method.
(2) Ordinary Shares due to Astron's former shareholders in June 1998.
(3) Stock options of the Company calculated based on the treasury method using
average market price for the period.
F-12
<PAGE> 110
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. SUPPLEMENTAL CASH FLOW DISCLOSURES
For purposes of the statement of cash flows, the Company considers highly
liquid investments with an original maturity of three months or less to be cash
equivalents. The following information relates to fiscal years ended March 31:
<TABLE>
<CAPTION>
1995 1996 1997
------ ------ -------
<S> <C> <C> <C>
Cash paid for:
Interest............................................... $ 848 $4,035 $ 4,927
Income taxes........................................... 297 2,656 1,717
Non-cash investing and financing activities:
Equipment acquired under capital lease obligations........ 9,364 14,381 14,783
Acquisition related items:
Acquisitions financed with stock....................... 7,445 -- 5,700
Notes payable to Astron's shareholders................. -- 15,000 --
Ordinary Shares due to Astron's shareholders........... -- 10,000 --
Ordinary Shares due under the Services Agreement....... -- 14,124 --
Earnout of $6.25 million payable to Astron's
shareholders less reduction in amount due under
Services Agreement................................... -- -- 5,250
</TABLE>
4. BANK BORROWINGS AND LONG-TERM DEBT
In March 1997, the Company entered into a new line of credit agreement and
a five year, $70 million term loan with a bank (together "the Credit Facility").
The Company was able to borrow up to $175 million under the Credit Facility
which expires in March 2000 and bears interest at the lender's base rate plus an
applicable margin which depends on certain financial ratios. This interest rate
was 8.4% as of March 31, 1997. The Company had the option to repay the entire
Credit Facility balance in fiscal 1998, and during October 1997 the Company
repaid all amounts outstanding under the Credit Facility. As such, both the term
loan balance and the line of credit balance have been classified as a current
liability in the accompanying March 31, 1997 consolidated balance sheet. During
January 1998, the Credit Facility was amended to, among other things, provide
for loans directly to the Company's subsidiaries, allow for loans in foreign
currencies and to eliminate the term loan provision. After amendment, the Credit
Facility provides for up to $105 million in line of credit borrowings, subject
to certain financial ratios. The Credit Facility is secured by substantially all
of the Company's assets and requires that the Company maintain certain financial
ratios and other covenants.
As of March 31, 1997, the Company has $70 million of revolving credit
available under the Credit Facility, based on certain financial ratios, and
other unused credit facilities with interest rates ranging from 4.64% to 7.0%
per annum. These facilities expire on various dates through 2003. Due to the
subsequent amendment of the Credit Facility, the Company had $105 million in
available credit as of December 31, 1997 under the Credit Facility.
The Company has financed the purchase of certain facilities with mortgages
and incurred other debt for working capital purposes. The mortgages generally
have terms of 6 to 7 years and annual interest rates ranging from 4.4% to 11.4%.
The other debt includes term loans and other loans with interest rates generally
ranging from 6.75% to 9% with terms of up to 8 years.
Notes payable relate to amounts due to the former shareholders of Astron
Group Limited, a company acquired in February 1996. The notes were for a total
of $15 million and bear interest at 8%. Of the $15 million balance, $10 million
was paid in February 1997 and the remaining $5 million was paid in February 1998
(See Note 11).
F-13
<PAGE> 111
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Bank borrowings and long-term debt was comprised of the following at March
31:
<TABLE>
<CAPTION>
1996 1997
-------- ---------
<S> <C> <C>
Outstanding under lines of credit..................... $ 22,956 $ 50,160
Credit Facility term loan............................. -- 70,000
Mortgages............................................. 12,522 7,770
Notes payable......................................... 15,686 5,223
Other debt............................................ 4,773 4,391
-------- --------
55,937 137,544
Current portion..................................... (37,532) (128,515)
-------- --------
Non-current portion................................. $ 18,405 $ 9,029
======== ========
</TABLE>
The weighted average interest rate for the current portion of bank
borrowings and other debt was 5.95% and 8.21% for the years ended March 31, 1996
and 1997, respectively.
Maturities for the bank borrowings and other debt are as follows for the
years ended March 31:
<TABLE>
<S> <C>
1998.............................................. $128,515
1999.............................................. 1,968
2000.............................................. 2,158
2001.............................................. 2,051
2002.............................................. 1,645
Thereafter........................................ 1,207
--------
$137,544
========
</TABLE>
The Company completed the sale of $150 million in senior subordinated notes
in October 1997. These notes mature in 2007 and bear interest at a rate of 8.75%
per annum. In addition, in October 1997, the Company repaid the outstanding term
loan and line of credit balance due under the Credit Facility.
5. OTHER LONG-TERM LIABILITIES
In accordance with the Astron acquisition agreement entered into in
February 1996, the Company is obligated to issue $10 million in Ordinary Shares
to the former Astron shareholders on June 30, 1998 (see Note 11).
Also in connection with the Astron acquisition in February 1996, the
Company agreed to pay a $15 million consulting fee to an entity affiliated with
Stephen Rees, who is a Director and Senior Vice President of the Company, under
a services agreement ("the Services Agreement") (See Note 11). The Services
Agreement was terminated in March 1997 at which time the Company unconditionally
agreed to pay to Mr. Rees' affiliate $14 million. This $14 million is comprised
of a $5 million payment in cash due on June 30, 1998 and $9 million which can be
paid in either cash or in Ordinary Shares at the Company's option, both due on
June 30, 1998. The Company intends to settle the $9 million portion of the fee
in stock. The Company has discounted the cash portion of the fee at 8% over the
period of the Services Agreement.
F-14
<PAGE> 112
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Other long-term liabilities were comprised of the following as of March 31:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Ordinary Shares due to former Astron shareholders........ $10,000 $10,000
Due under the Services Agreement......................... 14,184 13,547
Other long-term liabilities.............................. 5,298 4,779
------- -------
$29,482 $28,326
======= =======
</TABLE>
6. COMMITMENTS
As of March 31, 1996 and 1997, the Company has financed a total of $32,331
and $40,467 in machinery and equipment purchases with capital leases,
respectively. Accumulated amortization for property and equipment under capital
leases totals $9,019 and $11,974 at March 31, 1996 and 1997, respectively. These
capital leases have interest rates ranging from 3.8% to 17.2%. The Company also
leases certain of its facilities under non-cancelable operating leases. The
capital and operating leases expire in various years through 2006 and require
the following minimum lease payments for the years ended March 31:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
<S> <C> <C>
1998.................................................... $10,222 $ 3,885
1999.................................................... 7,648 3,476
2000.................................................... 5,416 2,687
2001.................................................... 4,108 1,926
2002.................................................... 2,294 1,589
Thereafter.............................................. 4,687 5,523
------- -------
Minimum lease payments.................................. 34,375 $19,086
=======
Amount representing interest............................ (6,003)
-------
Present value of minimum lease payments................. 28,372
Current portion......................................... (8,273)
-------
Capital lease obligations, net of current
portion.......................................... $20,099
=======
</TABLE>
Total rent expense was $2,410, $3,405 and $3,144 for the years ended March
31, 1995, 1996 and 1997, respectively.
As of March 31, 1997, the Company has outstanding purchase commitments for
fixed assets aggregating approximately $10,118.
7. INCOME TAXES
The domestic and foreign components of income (loss) before income taxes
were comprised of the following for the years ended March 31:
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- -------
<S> <C> <C> <C>
Singapore.................................... $(1,529) $(21,977) $ (392)
Foreign...................................... 8,998 11,678 14,039
------- ------- -------
$ 7,469 $(10,299) $13,647
======= ======= =======
</TABLE>
F-15
<PAGE> 113
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The provision for income taxes consisted of the following for the years
ended March 31:
<TABLE>
<CAPTION>
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.................................... 125 66 (417)
------ ------ ------
362 140 (976)
------ ------ ------
$ 1,588 $ 3,847 $ 2,027
====== ====== ======
</TABLE>
The Singapore statutory income tax rates were 27%, 26% and 26% for the
years ended March 31, 1995, 1996 and 1997, respectively. The reconciliation of
income tax expense expected based on Singapore statutory income tax rates to the
provision for income taxes included in the consolidated statements of operations
for the years ended March 31 is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- -------
<S> <C> <C> <C>
Income taxes based on Singapore statutory
rates...................................... $ 2,016 $ (2,678) $ 3,548
Losses from inactive Singapore operations.... 367 282 498
In-process research and development.......... -- 7,540 --
Foreign subsidiaries' earnings taxed at rates
below the Singapore statutory rate......... (1,568) (2,057) (3,368)
Amortization of goodwill and intangibles..... 205 329 436
Joint venture losses......................... 216 -- --
Bank commitment fees......................... -- -- 382
Other........................................ 352 431 531
------- ------- -------
Provision for income taxes......... $ 1,588 $ 3,847 $ 2,027
======= ======= =======
</TABLE>
F-16
<PAGE> 114
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The components of deferred income taxes are as follows as of March 31:
<TABLE>
<CAPTION>
1996 1997
------- --------
<S> <C> <C>
Deferred tax liabilities:
Depreciation.................................................... $(1,547) $ (939)
Intangible assets............................................... (3,097) (2,751)
Others.......................................................... (181) (247)
------- -------
Total deferred tax liability............................ (4,825) (3,937)
------- -------
Deferred tax assets:
Depreciation.................................................... 513 591
Provision for stock obsolescence................................ 683 1,364
Provision for doubtful accounts................................. 361 1,636
Provision for severance payments and other employee related
costs........................................................ 2,232 1,760
Net operating loss carryforwards................................ 15,415 18,793
Unabsorbed capital allowances carryforwards..................... 539 606
Others.......................................................... 623 665
------- -------
20,366 25,415
Valuation allowance............................................... (16,986) (22,139)
------- -------
Net deferred tax asset.................................. 3,380 3,276
------- -------
Net deferred tax liability................................. $(1,445) $ (661)
======= =======
</TABLE>
The net deferred tax liability is classified as follows:
<TABLE>
<S> <C> <C>
Non-current liability........................................... $(4,353) $ (3,710)
Current asset................................................... 2,908 3,049
------- --------
$(1,445) $ (661)
======= ========
</TABLE>
The deferred tax asset arises substantially from tax losses available for
carryforward. These tax losses can only be offset against future income of
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 realize the deferred tax asset benefit. The valuation allowance provides a
reserve against deferred tax assets that may expire or go unutilized by the
Company. In accordance with the guidelines included in SFAS No. 109 "Accounting
for Income Taxes," management has determined that more likely than not the
Company will not realize these benefits and, accordingly, has provided a
valuation allowance for them. The amount of deferred tax assets considered
realizable, however, could be reduced or increased in the near-term if facts,
including the amount of taxable income or the mix of taxable income between
subsidiaries, differ from managements' estimates.
At March 31, 1997, the Company had 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 these net
operating loss carryforwards may be subject to an annual limitation due to the
change in ownership rules provided by the Internal Revenue Code (the "Code").
This limitation and other restrictions provided by the Code may reduce the net
operating loss carryforwards such that it would not be available to offset
future taxable income of the U.S. subsidiary.
At March 31, 1997, the Company had operating loss carryforwards of
approximately $9,973, $632 and $6,300 in U.K., Malaysia and Austria,
respectively and such losses carry forward indefinitely. 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.
F-17
<PAGE> 115
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Distributions of earnings by the Austrian subsidiary are exempt from
Austrian income taxes under the international participation privilege. No
deferred tax liability has been provided for withholding taxes on distributions
of dividends by the Austrian subsidiary because earnings of foreign subsidiaries
are intended to be reinvested indefinitely.
The Company has been granted the following tax incentives:
(i) Pioneer status granted to one of its Malaysian subsidiaries for a
period of five years under the Promotion of Investment Act. This incentive
provides a tax exemption on manufacturing income for this subsidiary.
(ii) Product Export Enterprise incentive for the Shekou, China
facility. The Company's operation in Shekou, China is located in a "Special
Economic Zone" and is an approved "Product Export Enterprise' which
qualifies for a special corporate income tax rate of 10%. This special tax
rate is subject to the Company exporting more than 70% of its total value
of products manufactured in China. The Company's status as a Product Export
Enterprise is reviewed annually by the Chinese government.
The Company's investments in its plants in Xixiang, China 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 of the Chinese tax authorities, 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 $8 tax each year in accordance with Labuan tax legislation.
A portion of the Company's sales were carried out by its Mauritius
subsidiary which is not taxed.
8. SHAREHOLDERS' EQUITY
Issuance of non-employee stock options
In June 1996, the Company issued 20,000 stock options with an exercise
price of $31.25 to a customer as a result of that customer reaching a specified
sales target in accordance with an option agreement. These options were valued
as of the grant date using the Black-Scholes model. The resulting value of
$380,000 was recorded as a sales discount in the accompanying consolidated
statement of operations for fiscal 1997.
Secondary offerings
In August 1995, the Company completed a secondary offering of its Ordinary
Shares. A total of 1,000,000 Ordinary Shares were sold at a price of $23.50 per
share resulting in net proceeds to the Company of $22.3 million.
Subsequent to March 31, 1997, the Company completed another offering of its
Ordinary Shares. A total of 2,185,000 shares were sold at a price of $49.25 per
share resulting in net proceeds to the Company of $95.3 million.
Stock-based compensation
The Company has an Executives' Share Option Scheme ("SOS") and an
Executives' Incentive Share Scheme ("ISS") for selected management employees of
the Company. The ISS and SOS plans provide for the issuance of up to 58,800 and
474,000 options, respectively, at an exercise price of not less than 85% of the
F-18
<PAGE> 116
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
fair value of the underlying stock on the date of grant. Options issued under
these plans generally vest over 4 years and expire 5 years from the date of
grant.
The Company's 1993 Share Option Plan (the "Plan") provides for the grant of
incentive stock options and non-statutory stock options to employees and other
qualified individuals to purchase Ordinary Shares of the Company. As of March
31, 1997, the Company had reserved 2,000,00 Ordinary Shares for issuance under
the Plan at an exercise price of not less than 85% of the fair value of the
underlying stock on the date of grant. Options issued under these plans
generally vest over 4 years and expire 5 years from the date of grant.
The Company has assumed certain option plans and the underlying options of
companies which the Company has merged with or acquired (the "Assumed Plans").
Options under the Assumed Plans have been converted into the Company's options
and adjusted to effect the appropriate conversion ratio as specified by the
applicable acquisition or merger agreement, but are otherwise administered in
accordance with the terms of the Assumed Plans. Options under the Assumed Plans
generally vest over 4 years and expire 5 years from the date of grant.
The Company has elected to follow APB Opinion No. 25 "Accounting for Stock
Issued to Employees" and related interpretations in accounting for its employee
stock option plans and has adopted the disclosure provisions of SFAS No. 123
"Accounting for Stock Based Compensation". Because the exercise price of the
Company's stock options has equaled the fair value of the underlying stock on
the date of grant, no compensation expense has been recognized under APB Opinion
No. 25.
In accordance with the disclosure provisions of SFAS No. 123, the fair
value of employee stock options granted during fiscal 1996 and 1997 was
estimated at the date of grant using the Black-Scholes model and the following
weighted average assumptions: risk-free interest rates ranging from 5.31% to
5.77%; dividend yield of 0.0%, volatility of 0.67, and a weighted-average
expected life of 4.13 years. The weighted average fair value of an option
granted during fiscal 1996 and 1997 was $9.22 and 11.25, respectively. Had the
compensation cost for the Company's stock-based compensation plans been
determined based on the fair values of these options, the Company's fiscal 1996
and 1997 net income(loss) and net income(loss) per share would have been
adjusted to the pro-forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
Net income(loss):
As reported............................................. $(14,146) $11,620
Pro-forma............................................... (15,066) 9,537
Net income (loss) per share:
As reported.......................................... $ (0.92) $ 0.67
Pro-forma............................................ (0.98) 0.55
</TABLE>
Because SFAS No. 123 is applicable only to awards granted subsequent to
December 30, 1994, and due to the subjective nature of the assumptions used in
the Black-Scholes model, the pro-forma net income(loss) and net income(loss) per
share disclosures may not reflect the associated fair value of the outstanding
options.
F-19
<PAGE> 117
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following table presents the activity for options outstanding under the
SOS and ISS plans as well as the 1993 share Option Plan and the Assumed Plans as
of March 31 ("Price" reflects the weighted average exercise price):
<TABLE>
<CAPTION>
1995 1996 1997
----------------- ------------------ ------------------
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 $12.60
Granted................................. 231,249 8.97 641,783 20.63 723,314 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 1,675,022 18.57
========= ========= =========
</TABLE>
The following table presents the composition of options outstanding and
exercisable as of March 31, 1997("Price" and "Life" reflect the weighted average
exercise price and weighted average contractual life unless otherwise noted):
<TABLE>
<CAPTION>
OPTIONS
OPTIONS OUTSTANDING EXERCISABLE
RANGE OF EXERCISE ----------------------------- ------------------
PRICES AMOUNT PRICE LIFE AMOUNT PRICE
- ----------------------- --------- ------ ---- -------- -----
<S> <C> <C> <C> <C> <C>
$ .01 -- $11.75 428,698 $ 5.47 1.77 348,320 $5.43
11.76 -- 20.50 429,214 15.67 3.19 173,741 15.19
20.51 -- 27.75 585,097 24.21 4.52 23,082 25.03
27.76 -- 35.75 232,013 34.26 4.70 49,530 33.98
--------- -------
Total, March 31, 1997 1,675,022 18.57 594,673
========= =======
</TABLE>
As of March 31, 1997, the Company had reserved 2,500,779 Ordinary Shares
for future issuance under all stock option plans.
In addition, during the year ended March 31, 1995, 155,843 options granted
to Flextronics, Inc. (the Company's predecessor) in connection with the
Company's July 1993 reorganization were exercised.
9. PROVISION FOR PLANT CLOSINGS
The provision for plant closure of $5,868 in fiscal 1997 relates to the
costs incurred in downsizing the Texas facility, the write-off of equipment at
the nChip semiconductor fabrication facility and downsizing the Singapore
manufacturing operations. The provision includes $2 million for severance
payments and $500 for the write-off of fixed assets in the Singapore
manufacturing facilities. An additional amount of $2,808 associated with certain
obsolete equipment at the Company's nChip and Texas facilities have been
written-off. The provision also includes severance payments amounting to $560
for the employees of the Texas and nChip facility which were paid during fiscal
1997. The Company has not recorded the remaining costs related to existing
leases at the Texas facility as the Company is continuing to use the facility
for certain administrative and warehousing functions.
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.
10. RELATED PARTY TRANSACTIONS AND NOTES PAYABLES TO SHAREHOLDERS
Prior to becoming the Company's Chief Executive Officer in January 1994,
Michael E. Marks was the President and Chief Executive Officer of Metcal, Inc.
("Metcal"). Michael E. Marks remains a director of and continues to hold a
beneficial interest in Metcal. The Company had net sales of $989, $2,133 and
$1,548 to Metcal during fiscal 1995, 1996 and 1997, respectively.
F-20
<PAGE> 118
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Stephen Rees, a Director and Senior Vice President of the Company, holds a
beneficial interest in both Mayfield International Ltd. ("Mayfield") and Croton
Ltd. ("Croton"). During fiscal 1997, the Company paid $118 to Croton for
management services and $208 to Mayfield for the rental of certain office space.
Additionally, as of March 31, 1997, $2,554 was due from Mayfield under a note
receivable. The note is unsecured, bears interest at 7.15% per annum and matures
on February 4, 1999. The note is included in related party receivables on the
accompanying balance sheet.
As of March 31, 1997, the Company had notes receivable due from certain
executives and officers amounting to approximately $1.1 million. These notes
bear interest at rates ranging from 7.0% to 7.21% and have maturities of 6
months to 5 years and are reflected in other assets on the accompanying balance
sheet. Subsequent to March 31, 1997, $650,000 of the $1.1 million was repaid.
The Company also purchases materials from FICO Investment Holdings
("FICO"), an associated company in which the Company holds a 40% interest (see
Note 11). At March 31, 1997, the amount due to FICO for these purchases was
$546.
11. MERGERS, ACQUISITIONS AND STRATEGIC INVESTMENTS
Neutronics Holdings A.G.
On October 31, 1997, the Company acquired Neutronics Holdings A.G.
("Neutronics"), a contract manufacturer with operations located in Austria and
Hungary. The acquisition was accounted for as a pooling-of-interests and the
Company has issued 2,806,000 Ordinary Shares in exchange for 92% of the
outstanding shares of Neutronics. All financial statements presented have been
retroactively restated to include the results of Neutronics.
Separate results of operations for the periods presented are as follows for
the years ended March 31 and December 31:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Net sales:
Previously reported...................... $237,386 $448,346 $490,585
Neutronics............................... 54,763 123,699 149,422
--------- --------- ---------
As restated.............................. $292,149 $572,045 $640,007
========= ========= =========
Net income(loss):
Previously reported...................... $ 6,156 $(15,132) $ 7,463
Neutronics............................... (275) 986 4,157
--------- --------- ---------
As restated.............................. $ 5,881 $(14,146) $ 11,620
========= ========= =========
Shareholders' equity:
Previously reported...................... $ 57,717 $ 73,059 $ 83,592
Neutronics............................... 10,716 12,512 15,753
--------- --------- ---------
As restated.............................. $ 68,433 $ 85,571 $ 99,345
========= ========= =========
</TABLE>
Ericsson Business Networks AB
In March 1997, the Company acquired certain manufacturing facilities in
Karlskrona, Sweden and related inventory, equipment and assets ("The Karlskrona
Facilities") from Ericsson Business Networks AB ("Ericsson") for $82,354 which
was financed by the Credit Facility described in Note 4. The transaction has
been accounted for as a purchase and accordingly, the purchase price has been
allocated to the assets based on their estimated fair market values at the date
of acquisition. There was no material purchase price in excess of
F-21
<PAGE> 119
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
the fair value of the net assets acquired. The results of operations of the
Karlskrona Facilities have been included in the consolidated results of the
Company since the date of acquisition (March 27, 1997) and such results of these
facilities were immaterial for March 27, 1997 to March 31, 1997.
FICO Investment Holding Ltd.
In December 1996, the Company acquired 40% of FICO Investment Holding Ltd.
("FICO"), a plastic injection molding company located in Shenzhen, China for
$5.2 million of which $3 million was paid in December 1996. The remaining $2.2
million purchase price is included in accrued liabilities and other in the
accompanying consolidated balance sheets as of March 31, 1997 and was
subsequently paid in June 1997. Goodwill and other intangibles resulting from
this purchase totaled $3.2 million and is being amortized over ten years. The
Company has an option to purchase the remaining 60% of FICO in fiscal 1998; the
consideration for the remaining 60% is dependent on the financial performance of
FICO for the period ending December 31, 1997. The Company has not yet decided
whether to purchase the remaining 60% of FICO. The Company accounts for its
investment in FICO under the equity method and accordingly has included its 40%
share of FICO's operating results in its accompanying consolidated statement of
operations since the date of acquisition (December 20, 1996).
Fine Line Printed Circuit Design Inc.
In November 1996, the Company acquired Fine Line Printed Circuit Design,
Inc. ("Fine Line"), a circuit board layout and prototype operation company
located in San Jose, California. The Company issued 223,321 Ordinary Shares in
exchange for all of the outstanding capital stock of Fine Line. The merger was
accounted under the pooling-of-interests method of accounting; however, prior
period financial statements were not restated because the financial results of
Fine Line are not material to the consolidated financial statements.
Astron Group Ltd.
In February 1996, the Company acquired all the outstanding stock of Astron
Group Ltd. ("Astron") for $13.4 million in cash; 238,684 Ordinary Shares valued
at $6.5 million; issuance of $15 million in notes payable, $10 million of
Ordinary Shares to be issued on June 30, 1998 and $15 million due in June 1998
under a Services Agreement with an affiliate of Stephen Rees, the Chairman of
Astron. These components aggregated to a purchase price of approximately $59.9
million. This acquisition was accounted for as a purchase and accordingly, the
results of Astron have been included in the Company's consolidated statements of
operations since the date of acquisition (February 2, 1996).
The Services Agreement with an affiliate of Stephen Rees originally
provided for an annual fee, plus a $15 million payment to be made on June 30,
1998 subject to certain terms and conditions. As substantially all of the former
shareholders of Astron were affiliates of Mr. Rees, or members of his family,
the Company has accounted for the amounts due under the Services Agreement as
part of the Astron purchase price.
In addition, the purchase agreement required additional payments contingent
upon resolution of an earn-out provision based on the 1996 operating results of
Astron. In March 1997, the Company contemporaneously negotiated a $6.25 million
settlement of the earn-out provision and the termination of the Services
Agreement, removing the original terms and conditions and reducing the amount
due from $15 million to $14 million, $5 million of which is payable in cash and
$9 million of which may be settled in cash or Ordinary Shares at the Company's
option. Due to the interrelationship of these two settlements, the Company
determined that the resulting amounts should each be accounted for as an
adjustment to the purchase price of Astron. Accordingly, in March of 1997, the
purchase price of Astron was increased by a net amount of $5.25 million which
represents the agreed upon $6.25 million payment due under the earn-out
provision less the $1 million
F-22
<PAGE> 120
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
reduction due to the termination of the Services Agreement. The $6.25 million
due under the earn-out provision is included in accrued liabilities and other in
the accompanying consolidated balance sheets and was paid in April 1997. As a
result, the aggregate adjusted purchase price of Astron including the earn-out
consideration totaled $65 million.
The aggregate adjusted purchase price of $65 million was allocated based on
the relative fair value of the assets acquired as follows:
<TABLE>
<S> <C>
Astron's net assets at fair value.................................. $14,103
In-process research and development................................ 29,000
Goodwill and other intangible assets............................... 21,918
-------
Total purchase price..................................... $65,021
=======
</TABLE>
Goodwill and other intangible assets consist of goodwill, developed
technologies, customer lists, assembled workforce and trademarks which are being
amortized over 5 to 25 years.
As of the date of acquisition, the $29 million in purchase price allocated
to in-process research and development related to development projects which had
not reached technological feasibility and had no probable alternative future
uses; accordingly, the Company expensed the entire amount on the date of
acquisition as a one-time charge to operations.
Subsequent to March 31, 1997, the Company revised prospectively its
estimate of the useful lives associated with the Astron goodwill and other
intangible assets from 5 to 25 years to 5 to 10 years. This revision will
increase amortization expense by $279 per quarter beginning in the second
quarter of fiscal 1998.
Assembly & Automation (Electronics) Ltd.
In April 1995, the Company acquired all of the issued share capital of
Assembly & Automation (Electronics) Ltd. ("A&A"), a private limited company
incorporated in the United Kingdom that provided contract manufacturing services
for the electronics and telecommunications industries, for total consideration
of $4.1 million which included cash of $3.2 million and the issuance of 66,908
Ordinary Shares valued at $938. The transaction has been accounted for as a
purchase, and accordingly, the results of operations for A&A have been included
in the accompanying consolidated statements of operations since the date of
acquisition (April 12, 1995). The acquisition resulted in goodwill and other
intangible assets of $4.6 million which are being amortized over 3 to 20 years.
nCHIP, Inc.
In January 1995, the Company merged with nCHIP, Inc. ("nCHIP") through the
issuance of 2,104,602 Ordinary Shares 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 under the
pooling-of-interests method and accordingly, all prior period financial
statements have been restated to include the results of nCHIP. nCHIP had a
calendar year end and, accordingly, the nCHIP statement of operations for the
year ended December 31, 1993 has been combined with the Company's statement of
operations for the fiscal year ended March 31, 1994. Effective April 1, 1994,
nCHIP's fiscal year-end was 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 retained earnings.
F-23
<PAGE> 121
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Other purchase acquisitions
Prior to December 1994, the Company owned 49% of Flextracker Sdn Bhd
("Flextracker"). On December 30, 1994, the Company acquired the remaining net
assets of Flextracker for approximately $3.3 million, with the exception of a $1
million loan payable to Flextracker's other investor which was not acquired.
Additionally, on March 1, 1994, the Company acquired all of the outstanding
stock of Relevant Technologies, Inc. ("RTI") for approximately $4.0 million.
Both of these transactions have been accounted for under the purchase method,
and accordingly, results for the periods since the date of acquisition have been
included in the consolidated statements of operations. Goodwill associated with
the RTI acquisition totaled $2.4 million and is being amortized over twenty-five
years.
Unaudited pro-forma results for purchase acquisitions
The following unaudited pro-forma information reflects the results of
operations for the years ended March 31, 1995 and 1996 as if the acquisitions of
Astron, A&A, Flextracker and RTI had occurred as of April 1, 1994. The pro-forma
information gives effect to certain adjustments including amortization of
intangibles and goodwill. The unaudited pro forma information is based on the
acquired entities' results of operations for the years ended December 31, 1994
and 1995. These pro-forma results have been prepared for comparative purposes
only and are not necessarily indicative of what the actual operating results
would have been had the acquisitions taken place on April 1, 1994 or of
operating results which may occur in the future.
<TABLE>
<CAPTION>
1995 1996
-------- --------
<S> <C> <C>
Net sales.............................................. $346,982 $589,738
Net income (loss)...................................... (1,147) (16,037)
Net income (loss) per share............................ (0.08) (1.04)
</TABLE>
The above pro-forma information does not include the effects of acquiring
the Karlskrona Facilities in March 1997 because information relating to the
Karlskrona operation prior to the company's acquisition is not available.
Acquisitions subsequent to March 31, 1997
Subsequent to March 31, 1997, the Company also merged with DTM Products,
Inc.("DTM") and EnergiPilot AB ("Energipilot"). DTM is based in Colorado and
produces injection molded plastics. Energipilot is based in Sweden and produces
cable and cable assemblies. All of the outstanding shares of DTM and Energipilot
were acquired in exchange for 252,469 and 229,990 Ordinary Shares, respectively.
Both transactions are to be accounted for as a pooling-of-interests; however, as
these acquisitions are not material individually or in the aggregate, the
accompanying consolidated financial statements have not been restated to include
the results of DTM and Energipilot.
12. SEGMENT REPORTING
The Company operates in one primary business segment: providing
sophisticated electronics assembly and turnkey contract manufacturing services
to a select group of original equipment manufacturers engaged in the computer,
medical, consumer electronics and communications industries.
F-24
<PAGE> 122
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Sales for similar classes of products within the Company's business segment
is presented below for the years ended March 31:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Medical.................................... $ 49,161 $ 78,395 $ 94,238
Computer................................... 80,646 238,120 260,687
Telecommunication.......................... 44,034 67,254 110,093
PCB........................................ -- 4,485 28,470
Industrial................................. 79 10,691 8,612
Consumer products.......................... 93,724 105,204 110,397
MCMs....................................... 11,847 19,817 19,214
Others..................................... 12,658 48,079 8,296
-------- -------- --------
$292,149 $572,045 $640,007
======== ======== ========
</TABLE>
F-25
<PAGE> 123
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following tables summarize the Company's operations by geographical
area for the years ended March 31:
<TABLE>
<CAPTION>
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............................ 67,571 77,899 88,053
-------- -------- --------
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; Mexico:
Unaffiliated customers -
Domestic................................ 50,506 191,209 188,097
Export.................................. -- 11,178 --
Intercompany............................ -- 27 9
-------- -------- --------
50,506 202,414 188,106
-------- -------- --------
Europe:
Unaffiliated customers -
Domestic................................ 7,726 38,223 78,504
Export.................................. 47,037 104,817 93,477
Intercompany............................ -- -- --
-------- -------- --------
54,763 143,040 171,981
-------- -------- --------
Malaysia:
Unaffiliated customers -
Domestic................................ -- -- --
Export.................................. 158,168 $201,870 245,075
Intercompany............................ 4 -- --
-------- -------- --------
158,172 201,870 245,075
-------- -------- --------
Intercompany eliminations...................... (96,928) (138,706) (217,224)
-------- -------- --------
$292,149 $572,045 $640,007
======== ======== ========
</TABLE>
F-26
<PAGE> 124
FLEXTRONICS INTERNATIONAL LTD
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
INCOME(LOSS) FROM OPERATIONS:
Singapore.................................... $ 90 $(25,334) $ (184)
Hong Kong; China; Mauritius.................. 638 (6,110) 4,787
USA; Mexico.................................. (1,290) 4,570 (5,531)
Europe....................................... (93) 2,546 3,374
Malaysia..................................... 10,754 18,953 17,626
-------- -------- --------
$ 10,099 $ (5,375) $ 20,072
======== ======== ========
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....................................... 69,091 89,303 203,977
Malaysia..................................... 49,295 47,694 48,618
-------- -------- --------
$185,186 $309,267 $446,292
======== ======== ========
</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, are
interdependent and are not managed for stand-alone results. Certain operational
functions for the entire Company, such as marketing and administration, may be
carried out by a subsidiary in one country. In addition, the Company may from
time to time shift responsibilities from a subsidiary in one country to a
subsidiary in another country, thereby changing the operating results of the
impacted subsidiaries but not the Company as a whole. For these reasons, the
Company believes that changes in results of operations in the individual
countries in which it operates are not necessarily reflective of material
changes in the Company's overall results.
F-27
<PAGE> 125
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1997
------------ ---------
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash............................................................... $ 73,333 $ 24,159
Accounts receivable, net........................................... 122,613 87,507
Inventories........................................................ 147,115 124,362
Deferred income taxed and other current assets..................... 35,697 18,368
-------- --------
Total current assets....................................... 378,758 254,396
-------- --------
Property and equipment, net.......................................... 204,996 149,015
Other non-current assets............................................. 50,244 42,881
-------- --------
Total assets............................................... $633,998 $ 446,292
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Bank borrowings and current portion of long term debt.............. $ 20,278 $ 128,515
Capital lease obligations.......................................... 8,483 8,273
Accounts payable and accrued liabilities........................... 131,663 141,090
Other current liabilities.......................................... 67,710 6,763
-------- --------
Total current liabilities.................................. 228,134 284,641
-------- --------
Long term debt, net of current portion............................... 158,998 9,029
Capital lease obligations, net of current portion.................... 18,483 20,099
Deferred income taxes................................................ 4,012 3,710
Other non-current liabilities........................................ 15,804 28,326
Minority interest.................................................... 1,160 1,142
SHAREHOLDERS' EQUITY:
Ordinary shares, S$0.01 par value; Authorized -- 100,000,000
Shares; issued and outstanding -- 19,292,214 and 16,482,243 as
of December 31, 1997 and March 31, 1997, respectively........... 125 107
Additional paid-in capital......................................... 204,263 106,556
Accumulated deficit................................................ 8,021 (7,020)
Accumulated translation adjustment................................. (5,002) (298)
-------- --------
Total shareholders' equity................................. 207,407 99,345
-------- --------
Total liabilities and shareholders' equity................. $633,998 $ 446,292
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements
F-28
<PAGE> 126
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
NET SALES....................................... $295,000 $161,248 $782,013 $467,787
Cost of Sales................................... 266,192 148,614 705,496 421,931
--------- --------- --------- ---------
Gross Margin.......................... 28,808 12,634 76,517 45,856
OPERATING EXPENSES:
Selling, general and administrative
expenses................................... 13,773 9,333 38,143 26,101
Goodwill and intangibles amortization......... 951 749 2,704 2,152
Provision for plant closings.................. -- 2,321 -- 2,321
--------- --------- --------- ---------
Operating income(loss)................ 14,084 231 35,670 15,282
OTHER INCOME AND EXPENSE:
Merger related expenses.................... 4,000 -- 4,000 --
Other expense, net......................... 2,946 173 9,705 2,434
--------- --------- --------- ---------
Income before taxes............................. 7,138 58 21,965 12,848
Provision for income taxes...................... 1,197 281 2,856 2,029
--------- --------- --------- ---------
Net income (loss)............................... 5,941 (223) 19,109 10,819
========= ========= ========= =========
Diluted earnings per share...................... $ 0.29 $ (0.01) $ 1.03 $ 0.62
========= ========= ========= =========
Basic earnings per share........................ $ 0.31 $ (0.01) $ 1.07 $ 0.65
========= ========= ========= =========
Weighted average ordinary shares and equivalents
outstanding -- diluted........................ 20,379 16,792 18,631 17,358
========= ========= ========= =========
Weighted average ordinary shares and equivalents
outstanding -- basic.......................... 19,361 16,792 17,842 16,706
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE> 127
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
DECEMBER 31,
----------------------
1997 1996
--------- --------
<S> <C> <C>
Net cash provided by operating activities............................. $ 4,435 $ 42,078
--------- --------
Investing activities:
Purchases of property and equipment................................. (65,944) (24,557)
Proceeds from sale of property and equipment........................ 1,095 1,279
Proceeds from disposal of subsidiary................................ -- 1,341
Payment for Astron earn-out......................................... (6,250) --
Payment to FICO for 40% interest.................................... (2,200) (3,000)
Minority investment................................................. (2,756) (87)
Effect of Energipilot and DTM acquisitions.......................... 1,504 --
--------- --------
Net cash used in investing activities................................. (74,551) (25,024)
--------- --------
Financing activities:
Repayments of long term debt and bank borrowings.................... (120,750) (8,693)
Refinancing of lease assets......................................... -- 1,031
Repayment of capital lease obligations.............................. (7,298) (5,882)
Source of long term debt............................................ 3,220 1,524
Repayment of loan from related party................................ -- 1,381
Loan from (to) related party........................................ 2,975 (1,938)
Repayment of notes payable.......................................... (108) (286)
Net proceeds from issuance of share capital......................... 1,136 1,205
Net proceeds from issuance of Senior Subordinated Notes............. 145,687 --
Net proceeds from equity offering................................... 95,297 --
--------- --------
Net cash provided (used) by financing activities...................... 120,159 (11,658)
--------- --------
Effect of exchange rate changes on cash............................... (869) (186)
--------- --------
Net increase in cash.................................................. 49,174 5,210
Cash, beginning of period............................................. 24,159 8,647
--------- --------
Cash, end of period................................................... $ 73,333 $ 13,857
========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 128
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
only of normal recurring adjustments) considered necessary for a fair
presentation have been included. Operating results for the nine month period
ended December 31, 1997 are not necessarily indicative of the results that may
be expected for the year ending March 31, 1998.
On October 30, 1997 the Company acquired 92% of the outstanding shares of
Neutronics Electronics Industries Holding AG ("Neutronics"), an Austrian PCB
assembly company with operations in Austria and Hungary, in exchange for
2,806,000 Ordinary Shares of the Company.
This transaction was accounted for as a pooling-of-interests and
accordingly, the accompanying condensed consolidated financial statements have
been restated to reflect the merger as if it occurred at the beginning of the
first period presented. Neutronics' fiscal year ends on December 31. The
condensed consolidated income statements combine Neutronics' results for the
nine months and three months ended December 31, 1997 with Flextronics results
for the nine months and three months ended December 31, 1997. The condensed
balance sheets as of March 31, 1997 and December 31, 1997 include Neutronics'
balance sheets as of December 31, 1996 and 1997, respectively. Neutronics net
loss of $3.2 million for the three months ended March 31, 1997 has been recorded
as an adjustment to retained earnings. A reconciliation of previously reported
results for the three and nine months ended December 31, 1996 to the results in
this form 10-Q is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, 1996 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Net sales:
Previously reported..................... $121,525 $ 361,884
Neutronics.............................. 39,723 105,903
-------- --------
As restated............................. $161,248 $ 467,787
======== ========
Net income:
Previously reported..................... $ (309) $ 9,029
Neutronics.............................. 86 1,790
-------- --------
As restated............................. $ (223) $ 10,819
======== ========
</TABLE>
NOTE B -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1997
------------ ---------
(IN THOUSANDS)
<S> <C> <C>
Raw materials........................................ $118,034 $ 80,010
Work-in-process...................................... 26,524 16,665
Finished goods....................................... 2,557 27,687
-------- --------
Total...................................... $147,115 $ 124,362
======== ========
</TABLE>
F-31
<PAGE> 129
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 (CONTINUED)
(UNAUDITED)
NOTE B -- INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31 MARCH 31
1997 1997
----------- --------
(IN THOUSANDS)
<S> <C> <C>
Raw materials........................................ $ 118,034 $ 80,010
Work-in-process...................................... 26,524 16,665
Finished goods....................................... 2,557 27,687
-------- --------
Total...................................... $ 147,115 $124,362
======== ========
</TABLE>
NOTE C -- RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, FASB issued SFAS No. 129, "Disclosure of Information
about Capital Structure," which will be adopted by the Company in the fourth
quarter of 1998. SFAS No. 129 requires companies to disclose certain information
about their capital structure. The Company does not anticipate that SFAS No. 129
will have a material impact on its financial statements.
In July 1997, FASB issued SFAS No. 130, "Reporting Comprehensive Income,"
which is effective for fiscal years ending after December 15, 1997. The Company
does not anticipate that SFAS No. 130 will have a material effect on its
financial position, results of operations, or cash flows.
In June 1997, FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which is effective for fiscal years
beginning after December 15, 1997. The Company does not anticipate that SFAS No.
131 will have a material impact on its financial statements.
NOTE D -- NET INCOME PER SHARE
Diluted net income per share for each period is calculated in accordance
with SFAS No. 128 by dividing net income by the weighted average shares of
common stock and common stock equivalents outstanding during the period using
the treasury stock method. Common stock equivalents consist of shares issuable
upon the exercise of outstanding common stock options and warrants.
F-32
<PAGE> 130
======================================================
NO DEALER, SALES REPRESENTATIVE, OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES
OTHER THAN THE NOTES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF,
ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE
UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary................................ 4
Risk Factors........................... 11
Enforcement of Civil Liabilities....... 24
Use of Proceeds........................ 24
Capitalization......................... 25
Selected Financial Data................ 26
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 27
Business............................... 41
Management............................. 53
Executive Compensation................. 55
Description of the Credit Facility..... 59
The Exchange Offer..................... 60
Description of the Notes............... 67
Certain Tax Considerations............. 93
Plan of Distribution................... 96
Legal Matters.......................... 96
Independent Accountants................ 96
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
======================================================
======================================================
Flextronics International Logo
FLEXTRONICS
INTERNATIONAL LTD.
$150,000,000
------------------------------
PROSPECTUS
------------------------------
FEBRUARY 27, 1998
======================================================
<PAGE> 131
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
Article 155 of the Company's Articles of Association provides that, subject
to the Companies Act, every director or officer shall be entitled to be
indemnified by the Company against all liabilities incurred by him in the
execution and discharge of his duties or in relation thereto including any
liability in defending any proceedings, civil or criminal, which relate to
anything done or omitted or alleged to have been done or omitted by him as an
officer or employee of the Company and (i) in which judgment is given in his
favor (or the proceedings otherwise disposed of without finding or admission of
any material breach of duty), (ii) in which he is acquitted or (iii) in
connection with any application under any statute for relief from liability in
respect of any such act or omission in which relief is granted to him by the
court and further, that no director or other officer shall be liable for the
acts, receipts, neglects or defaults of any other director or officer or for
joining in any receipt or other act for conformity or for any loss or expense
happening to the Company through the insufficiency or deficiency of title to any
property acquired by order of the directors for the Company or for the
insufficiency or deficiency of any security upon which any of the monies of the
Company are invested or for any loss or damage arising from the bankruptcy,
insolvency or tortious act of any person with whom any monies, securities or
effects are deposited or for any other loss or misfortune which happens in the
execution of his duties unless the same happens through his own negligence,
willful default, breach of duty or breach of trust. Section 172 of the Companies
Act prohibits a company from indemnifying its directors or officers against
liability which by law would otherwise attach to them in respect of any
negligence, default, breach of duty or breach of trust of which they may be
guilty in relation to a Company, except to the extent permitted under Article
155 of the Company's Articles of Association, and any such indemnity is void and
unenforceable. The Company has entered into Indemnification Agreements with its
officers and directors. The Indemnification Agreements provide the Company's
officers and directors with indemnification to the maximum extent permitted by
the Companies Act.
The Company has obtained a policy of directors' and officers' liability
insurance that will insure directors and officers against the cost of defense,
settlement or payment of a judgment under certain circumstances.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ---------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of September 12, 1994 among the
Registrant, nCHIP Acquisition Corporation and nCHIP (the "Reorganization
Agreement"). Certain Disclosure Schedules of nCHIP and the Registrant setting
forth various exceptions to the representations and warranties pursuant to the
Reorganization Agreement have been omitted. The Company agrees to furnish
supple=mentally a copy of any omitted schedule to the Commission upon request.
(Incorporated by reference to Exhibits 2.1 through 2.6 of the Registrant's
registration statement on Form S-4, No. 33-85842.)
2.2 Amendment No. 1 to the Reorganization Agreement dated as of December 8, 1994
among the Registrant, nCHIP Acquisition Corporation and nCHIP. (Incorporated by
reference to Exhibit 2.7 of the Registrant's registration statement on Form S-4.
No. 3385842.)
2.3 Share Purchase Agreement dated as of April 12, 1995 among the Registrant, A&A and
all of the shareholders of A&A. (Incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K for the event reported on April 12,
1995.)
2.4 Asset Sale Agreement dated December 29, 1994 between FlexTracker Sdn. Bhd. and
Flextronics Malaysia Sdn. Bhd. (Incorporated by reference to Exhibit 10.19 of the
Registrant's registration statement on Form S-4, No. 33-85842.)
</TABLE>
II-1
<PAGE> 132
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ---------------------------------------------------------------------------------
<C> <S>
2.5 Agreement among the Registrant, Alberton Holdings Limited and Omac Sales Limited
dated as of January 6, 1996. (Incorporated by reference to Exhibit 2.1 of the
Registrant's Current Report on Form 8-K for the event reported on February 2,
1996.)
2.6 Asset Transfer Agreement between Ericsson Business Networks AB and Flextronics
International Sweden AB dated as February 12, 1997. Certain schedules have been
omitted. The Company agrees to furnish supplementally a copy of any omitted
schedule to the Commission upon request. (Incorporated by reference to Exhibit
2.6 of the Registrant's registration statement on Form S-3, No. 333-21715.)
2.7 Exchange Agreement dated October 19, 1997 by and among Registrant, Neutronics
Electronic Industries Holding A.G. and the named Shareholders of Neutronics
Electronic Industries Holding A.G. (Incorporated by reference to Exhibit 2 of the
Registrant's Current Report on Form 8-K for event reported on October 30, 1997.)
3.1 Memorandum of Association of the Registrant. (Incorporated by reference to
Exhibit 3.1 of the Registrant's registration statement on Form S-1, No.
33-74622.)
3.2 Articles of Association of the Registrant. (Incorporated by reference to Exhibit
3.2 of the Registrant's registration statement on Form S-4, No. 33-85842.)
4.1 Indenture dated as of October 15, 1997 between Registrant and State Street Bank
and Trust Company of California, N.A., as trustee. (Incorporated by reference to
Exhibit 10.1 of the Registrant's Current Report on Form 8-K for event reported on
October 15, 1997.)
5.1** Opinion and Consent of Allen & Gledhill with respect to the Ordinary Shares being
registered.
10.1 Form of Indemnification Agreement between the Registrant and its Directors and
certain officers. (Incorporated by reference to Exhibit 10.1 of the Company's
registration statement on Form S-1, No. 33-74622.)
10.2 1993 Share Option Plan. (Incorporated by reference to Exhibit 10.2 of the
Company's registration statement on Form S-1, No. 33-74622.
10.3 Executives' Share Option Scheme, as amended. (Incorporated by reference to
Exhibit 10.3 of the Company's registration statement on Form S-1, No. 33-74622.)
10.4 Executives' Incentive Share Scheme, as amended. (Incorporated by reference to
Exhibit 10.4 of the Company's registration statement on Form S-1, No. 33-74622.)
10.5 nCHIP, Inc. Amended and Restated 1988 Stock Option Plan. (Incorporated by
reference to Exhibit 10.5 of the Company's registration statement on Form S-4,
No. 33-85842.)
10.6* Agreement to Grant Options dated as of June 9, 1995 between the Company and
Lifescan. (Incorporated by reference to Exhibit 10.7 of the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1995.)
10.7 Lease Agreement dated as of October 1, 1994 among Shenzhen Xinan Industrial
Shareholdings Limited, Flextronics Industrial (Shenzhen) Limited and Flextronics
Singapore Pte Ltd. (Incorporated by reference to Exhibit 10.25 of the Company's
Annual Report on Form 10-K for the fiscal year ended March 31, 1995).
10.8 Lease Agreement dated as of January 2, 1995 between Shenzhen Xinan Industrial
Shareholdings Limited and Flextronics Industrial (Shenzhen) Limited.
(Incorporated by reference to Exhibit 10.25 of the Company's Annual Report on
Form 10-K for the fiscal year ended March 31, 1995.)
10.9 Services Agreement between the Registrant and Stephen Rees dated as of January 6,
1996. (Incorporated by reference to Exhibit 10.1 of the Company's Current Report
on Form 8-K for the event reported on February 2, 1996.)
</TABLE>
II-2
<PAGE> 133
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------ ---------------------------------------------------------------------------------
<C> <S>
10.10 Supplemental Services Agreement between Astron and Stephen Rees dated as of
January 6, 1996. (Incorporated by reference to Exhibit 10.2 of the Company's
Current Report on Form 8-K for the event reported on February 2, 1996.)
10.11 Promissory Note dated April 17, 1995 executed by Michael E. Marks in favor of
Flextronics Technologies, Inc. (Incorporated by reference to Exhibit 10.34 to the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1995.)
10.12 Service Agreement dated July 8, 1993 between the Registrant and Dennis P.
Stradford. (Incorporated by reference to Exhibit 10.36 of the Company's
registration statement on Form S-1, No. 33-74622.)
10.13 Service Agreement dated July 8, 1993 between the Registrant and Tsui Sung Lam.
(Incorporated by reference to Exhibit 10.37 of the Company's registration
statement on Form S-1, No. 33-74622.)
10.14 Service Agreement dated July 8, 1993 between the Registrant and Goh Chan Peng.
(Incorporated by reference to Exhibit 10.38 of the Company's registration
statement on Form S-1, No. 33-74622.)
10.15* Printed Circuit Board Assembly Services Agreement between Lifescan Inc., a
Johnson & Johnson Company, and the Registration dated November 1, 1992.
(Incorporated by reference to Exhibit 10.41 of the Company's registration
statement on Form S-1, No. 33-74622.)
10.16 Tenancy of Flatted Factory Unit dated February 28, 1996 between Jurong Town
Corporation and the Registrant. (Incorporated by reference to Exhibit 10.44 of
the Company's Annual Report on Form 10-K for fiscal year ended March 31, 1990.)
10.17 Tenancy of Flatted Factory Unit dated May 14, 1993 between Jurong Town
Corporation and the Registrant. (Incorporated by reference to Exhibit 10.45 of
the Company's registration statement on Form S-1, No. 33-74622.)
10.18 Flextronics Asia U.S.A. 401(k) plan. (Incorporated by reference to Exhibit 10.52
of the Company's registration statement on Form S-1, No. 33-74622.)
10.19 Acquisition and Subscription Agreement dated June 30, 1993 between FI Liquidating
Company, Inc., Asian Oceanic Nominees and Custodians Limited, N.T. Butterfield
Trustee (Bermuda) Limited, Overseas Asset Holdings, Inc., JF Asia Select Limited,
the Executive Representative, Flex Holdings Pte Limited, CLG Partners, L.P. and
the Liquidators of Asian Oceanic Nominees and Custodians Limited. (Incorporated
by reference to Exhibit 10.53 of the Company's registration statement on Form
S-1, No. 33-74622.)
10.20 Amended and Restated Revolving Credit Agreement dated as of January 14, 1998
among Flextronics International Ltd., BankBoston, N.A. and the lending
institutions listed on Schedule 1 attached thereto and BankBoston, N.A. as agent
with BancBoston Securities Inc. as arranger. The Company agrees to furnish a copy
of the omitted schedules to the Commission upon request. (Incorporated by
reference to Exhibit 10.1 of the Company's Report on Form 10-Q for the quarterly
period ended December 31, 1997.)
10.21 Amended and Restated Revolving Credit Agreement dated as of January 14, 1998
among Flextronics International USA, Inc., BankBoston, N.A. and the lending
institutions listed on Schedule 1 attached thereto and BankBoston, N.A. as agent
with BancBoston Securities Inc. as arranger. The Company agrees to furnish a copy
of the omitted schedules to the Commission upon request. (Incorporated by
reference to Exhibit 10.2 of the Company's Report on Form 10-Q for the quarterly
period ended December 31, 1997.)
10.22 Employment and Noncompetition Agreement dated as of April 30, 1997 between
Flextronics International Sweden AB and Ronny Nilsson. (Incorporated by reference
to Exhibit 10.29 of the Company's Annual Report on Form 10-K for fiscal year
ended March 31, 1997.)
</TABLE>
II-3
<PAGE> 134
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
<C> <S>
10.23 Services Agreement dated as of April 30, 1997 between
Flextronics International USA, Inc. and Ronny Nilsson.
(Incorporated by reference to Exhibit 10.30 of the Company's
Annual Report on Form 10-K for fiscal year ended March 31,
1997.)
10.24 Promissory Note dated April 15, 1997 executed by Ronny
Nilsson in favor of Flextronics International USA, Inc.
(Incorporated by reference to Exhibit 10.31 of the Company's
Annual Report on Form 10-K for fiscal year ended March 31,
1997.)
10.25 Letter Agreement dated March 27, 1997 among the Company,
Astron Technologies Limited, Croton Technology Ltd. and
Stephen Rees regarding the termination of the Services
Agreement. (Incorporated by reference to Exhibit 10.32 of
the Company's Annual Report on Form 10-K for fiscal year
ended March 31, 1997.)
10.26 Letter Agreement dated March 27, 1997 between Astron Group
Limited and Stephen Rees regarding the termination of the
Supplemental Services Agreement. (Incorporated by reference
to Exhibit 10.33 of the Company's Annual Report on Form 10-K
for fiscal year ended March 31, 1997.)
10.27 Services Agreement between Flextronics Singapore Pte Limited
and Goh Chan Peng effective as of April 1, 1997.
(Incorporated by reference to Exhibit 10.34 of the Company's
Annual Report on Form 10-K for fiscal year ended March 31,
1997.)
10.28 Services Agreement between Astron Technologies Limited and
Goh Chan Peng effective as of April 1, 1997. (Incorporated
by reference to Exhibit 10.35 of the Company's Annual Report
on Form 10-K for fiscal year ended March 31, 1997.)
10.29 Services Agreement between Astron Technologies Limited and
Tsui Sung Lam effective as of April 1, 1997. (Incorporated
by reference to Exhibit 10.36 of the Company's Annual Report
on Form 10-K for fiscal year ended March 31, 1997.)
10.30 Services Agreement between Flextronics Singapore Pte Limited
and Tsui Sung Lam effective as of April 1, 1997.
(Incorporated by reference to Exhibit 10.37 of the Company's
Annual Report on Form 10-K for fiscal year ended March 31,
1997.)
10.31 ** Secured Full Recourse Promissory Note, dated November 6,
1997, executed by Michael E. Marks in favor of Flextronics
International USA, Inc.
12.1** Statement regarding computation of ratios ratio of EBITDA to
Interest Expense.
12.2** Statement regarding computation of ratio of Total Debt to
EBITDA.
12.3** Statement regarding computation of ratio of earnings to
Fixed Charges.
21.1** Subsidiaries of Registrant.
23.1** Consent of Arthur Andersen.
23.2** Consent of Moore Stephens
23.3** Consent of Allen & Gledhill (included in Exhibit 5.1).
24.1** Power of Attorney.
25.1** Statement of Eligibility of Trustee.
99.1** Letter of Transmittal.
</TABLE>
- ---------------
* Confidential treatment requested for portions of agreement.
** Previously filed.
ITEM 22. UNDERTAKINGS
The undersigned registrant hereby undertakes:
II-4
<PAGE> 135
(1) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other items of the applicable form.
(2) (i) that is filed pursuant to paragraph (1) immediately preceding, or
(ii) that purports to meet the requirements of Section 10(a)(3) of the Act and
is used in connection with an offering of securities subject to Rule 415, will
be filed as part of an amendment to the registration statement and will not be
used until such amendment is effective, and that, for purposes of determining
any liability under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 136
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to its registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of San Jose,
State of California, on this 4th day of March, 1998.
FLEXTRONICS INTERNATIONAL LTD.
By: /s/ ROBERT R.B. DYKES
------------------------------------
Robert R.B. Dykes
Senior Vice President of
Finance and Administration and
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this amendment
to the Registrant's registration statement has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
* /s/ MICHAEL E. MARKS Chairman of the Board, and Chief March 4, 1998
- --------------------------------------------- Executive Officer (principal
Michael E. Marks executive officer)
* /s/ TSUI SUNG LAM President, Chief Operating Officer March 4, 1998
- --------------------------------------------- and Director
Tsui Sung Lam
/s/ ROBERT R.B. DYKES Senior Vice President of Finance March 4, 1998
- --------------------------------------------- and Administration and Chief
Robert R.B. Dykes Financial Officer (principal
financial and accounting officer)
* /s/ STEPHEN J.L. REES Chairman, Astron Group Limited March 4, 1998
- --------------------------------------------- Director
Stephen J.L. Rees
* /s/ MICHAEL J. MORITZ Director March 4, 1998
- ---------------------------------------------
Michael J. Moritz
* /s/ RICHARD L. SHARP Director March 4, 1998
- ---------------------------------------------
Richard L. Sharp
* /s/ PATRICK FOLEY Director March 4, 1998
- ---------------------------------------------
Patrick Foley
* /s/ ALAIN AHKONG Director March 4, 1998
- ---------------------------------------------
Alain Ahkong
* /s/ SHING LEONG HUI Director March 4, 1998
- ---------------------------------------------
Shing Leong Hui
*By: /s/ ROBERT R.B. DYKES
---------------------------------------
Robert R.B. Dykes
Attorney-in-fact
</TABLE>
II-6
<PAGE> 137
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED MARCH 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
---------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING OF COSTS AND OTHER DEDUCTIONS/ END OF
PERIOD EXPENSES ACCOUNTS WRITE-OFFS PERIOD
------------ ------------ ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts
receivable:
Period
Year ended March 31, 1995...... 549(a) 1,296 0 (85) 1,760
Year ended March 31, 1996...... 1,903 2,170 0 (307) 3,766
Year ended March 31, 1997...... 3,766 3,091 0 (785) 6,072
</TABLE>
- ---------------
(a) The opening balances have been restated to reflect the acquisition in
December 1994 of net assets of Flex Tracker Sdn Bhd.
S-1
<PAGE> 138
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED PAGE
- ------ -------------------------------------------------------------------- -------------
<C> <S> <C>
2.1 Agreement and Plan of Reorganization dated as of September 12, 1994
among the Registrant, nCHIP Acquisition Corporation and nCHIP (the
"Reorganization Agreement"). Certain Disclosure Schedules of nCHIP
and the Registrant setting forth various exceptions to the
representations and warranties pursuant to the Reorganization
Agreement have been omitted. The Company agrees to furnish
supple=mentally a copy of any omitted schedule to the Commission
upon request. (Incorporated by reference to Exhibits 2.1 through 2.6
of the Registrant's registration statement on Form S-4, No.
33-85842.)
2.2 Amendment No. 1 to the Reorganization Agreement dated as of December
8, 1994 among the Registrant, nCHIP Acquisition Corporation and
nCHIP. (Incorporated by reference to Exhibit 2.7 of the Registrant's
registration statement on Form S-4. No. 3385842.)
2.3 Share Purchase Agreement dated as of April 12, 1995 among the
Registrant, A&A and all of the shareholders of A&A. (Incorporated by
reference to Exhibit 2.1 of the Registrant's Current Report on Form
8-K for the event reported on April 12, 1995.)
2.4 Asset Sale Agreement dated December 29, 1994 between FlexTracker
Sdn. Bhd. and Flextronics Malaysia Sdn. Bhd. (Incorporated by
reference to Exhibit 10.19 of the Registrant's registration
statement on Form S-4, No. 33-85842.)
2.5 Agreement among the Registrant, Alberton Holdings Limited and Omac
Sales Limited dated as of January 6, 1996. (Incorporated by
reference to Exhibit 2.1 of the Registrant's Current Report on Form
8-K for the event reported on February 2, 1996.)
2.6 Asset Transfer Agreement between Ericsson Business Networks AB and
Flextronics International Sweden AB dated as February 12, 1997.
Certain schedules have been omitted. The Company agrees to furnish
supplementally a copy of any omitted schedule to the Commission upon
request. (Incorporated by reference to Exhibit 2.6 of the
Registrant's registration statement on Form S-3, No. 333-21715.)
2.7 Exchange Agreement dated October 19, 1997 by and among Registrant,
Neutronics Electronic Industries Holding A.G. and the named
Shareholders of Neutronics Electronic Industries Holding A.G.
(Incorporated by reference to Exhibit 2 of the Registrant's Current
Report on Form 8-K for event reported on October 30, 1997.)
3.1 Memorandum of Association of the Registrant. (Incorporated by
reference to Exhibit 3.1 of the Registrant's registration statement
on Form S-1, No. 33-74622.)
3.2 Articles of Association of the Registrant. (Incorporated by
reference to Exhibit 3.2 of the Registrant's registration statement
on Form S-4, No. 33-85842.)
4.1 Indenture dated as of October 15, 1997 between Registrant and State
Street Bank and Trust Company of California, N.A., as trustee.
(Incorporated by reference to Exhibit 10.1 of the Registrant's
Current Report on Form 8-K for event reported on October 15, 1997.)
5.1** Opinion and Consent of Allen & Gledhill with respect to the Ordinary
Shares being registered.
</TABLE>
<PAGE> 139
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED PAGE
- ------ -------------------------------------------------------------------- -------------
<C> <S> <C>
10.1 Form of Indemnification Agreement between the Registrant and its
Directors and certain officers. (Incorporated by reference to
Exhibit 10.1 of the Company's registration statement on Form S-1,
No. 33-74622.)
10.2 1993 Share Option Plan. (Incorporated by reference to Exhibit 10.2
of the Company's registration statement on Form S-1, No. 33-74622.
10.3 Executives' Share Option Scheme, as amended. (Incorporated by
reference to Exhibit 10.3 of the Company's registration statement on
Form S-1, No. 33-74622.)
10.4 Executives' Incentive Share Scheme, as amended. (Incorporated by
reference to Exhibit 10.4 of the Company's registration statement on
Form S-1, No. 33-74622.)
10.5 nCHIP, Inc. Amended and Restated 1988 Stock Option Plan.
(Incorporated by reference to Exhibit 10.5 of the Company's
registration statement on Form S-4, No. 33-85842.)
10.6* Agreement to Grant Options dated as of June 9, 1995 between the
Company and Lifescan. (Incorporated by reference to Exhibit 10.7 of
the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1995.)
10.7 Lease Agreement dated as of October 1, 1994 among Shenzhen Xinan
Industrial Shareholdings Limited, Flextronics Industrial (Shenzhen)
Limited and Flextronics Singapore Pte Ltd. (Incorporated by
reference to Exhibit 10.25 of the Company's Annual Report on Form
10-K for the fiscal year ended March 31, 1995).
10.8 Lease Agreement dated as of January 2, 1995 between Shenzhen Xinan
Industrial Shareholdings Limited and Flextronics Industrial
(Shenzhen) Limited. (Incorporated by reference to Exhibit 10.25 of
the Company's Annual Report on Form 10-K for the fiscal year ended
March 31, 1995.)
10.9 Services Agreement between the Registrant and Stephen Rees dated as
of January 6, 1996. (Incorporated by reference to Exhibit 10.1 of
the Company's Current Report on Form 8-K for the event reported on
February 2, 1996.)
10.10 Supplemental Services Agreement between Astron and Stephen Rees
dated as of January 6, 1996. (Incorporated by reference to Exhibit
10.2 of the Company's Current Report on Form 8-K for the event
reported on February 2, 1996.)
10.11 Promissory Note dated April 17, 1995 executed by Michael E. Marks in
favor of Flextronics Technologies, Inc. (Incorporated by reference
to Exhibit 10.34 to the Company's Annual Report on Form 10-K for the
fiscal year ended March 31, 1995.)
10.12 Service Agreement dated July 8, 1993 between the Registrant and
Dennis P. Stradford. (Incorporated by reference to Exhibit 10.36 of
the Company's registration statement on Form S-1, No. 33-74622.)
10.13 Service Agreement dated July 8, 1993 between the Registrant and Tsui
Sung Lam. (Incorporated by reference to Exhibit 10.37 of the
Company's registration statement on Form S-1, No. 33-74622.)
10.14 Service Agreement dated July 8, 1993 between the Registrant and Goh
Chan Peng. (Incorporated by reference to Exhibit 10.38 of the
Company's registration statement on Form S-1, No. 33-74622.)
</TABLE>
<PAGE> 140
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
NUMBER DESCRIPTION OF DOCUMENT NUMBERED PAGE
- ------ -------------------------------------------------------------------- -------------
<C> <S> <C>
10.15* Printed Circuit Board Assembly Services Agreement between Lifescan
Inc., a Johnson & Johnson Company, and the Registrant dated November
1, 1992. (Incorporated by reference to Exhibit 10.41 of the
Company's registration statement on Form S-1, No. 33-74622.)
10.16 Tenancy of Flatted Factory Unit dated February 28, 1996 between
Jurong Town Corporation and the Registrant. (Incorporated by
reference to Exhibit 10.44 of the Company's Annual Report on Form
10-K for fiscal year ended March 31, 1990.)
10.17 Tenancy of Flatted Factory Unit dated May 14, 1993 between Jurong
Town Corporation and the Registrant. (Incorporated by reference to
Exhibit 10.45 of the Company's registration statement on Form S-1,
No. 33-74622.)
10.18 Flextronics Asia U.S.A. 401(k) plan. (Incorporated by reference to
Exhibit 10.52 of the Company's registration statement on Form S-1,
No. 33-74622.)
10.19 Acquisition and Subscription Agreement dated June 30, 1993 between
FI Liquidating Company, Inc., Asian Oceanic Nominees and Custodians
Limited, N.T. Butterfield Trustee (Bermuda) Limited, Overseas Asset
Holdings, Inc., JF Asia Select Limited, the Executive
Representative, Flex Holdings Pte Limited, CLG Partners, L.P. and
the Liquidators of Asian Oceanic Nominees and Custodians Limited.
(Incorporated by reference to Exhibit 10.53 of the Company's
registration statement on Form S-1, No. 33-74622.)
10.20 Amended and Restated Revolving Credit Agreement dated as of January
14, 1998 among Flextronics International Ltd., BankBoston, N.A. and
the lending institutions listed on Schedule 1 attached thereto and
BankBoston, N.A. as agent with BancBoston Securities Inc. as
arranger. The Company agrees to furnish a copy of the omitted
schedules to the Commission upon request. (Incorporated by refer-
ence to Exhibit 10.1 of the Company's Report on Form 10-Q for the
quarterly period ended December 31, 1997.)
10.21 Amended and Restated Revolving Credit Agreement dated as of January
14, 1998 among Flextronics International USA, Inc., BankBoston, N.A.
and the lending institutions listed on Schedule 1 attached thereto
and BankBoston, N.A. as agent with BancBoston Securities Inc. as
arranger. The Company agrees to furnish a copy of the omitted
schedules to the Commission upon request. (Incorporated by reference
to Exhibit 10.2 of the Company's Report on Form 10-Q for the
quarterly period ended December 31, 1997.)
10.22 Employment and Noncompetition Agreement dated as of April 30, 1997
between Flextronics International Sweden AB and Ronny Nilsson.
(Incorporated by reference to Exhibit 10.29 of the Company's Annual
Report on Form 10-K for fiscal year ended March 31, 1997.)
10.23 Services Agreement dated as of April 30, 1997 between Flextronics
International USA, Inc. and Ronny Nilsson. (Incorporated by
reference to Exhibit 10.30 of the Company's Annual Report on Form
10-K for fiscal year ended March 31, 1997.)
10.24 Promissory Note dated April 15, 1997 executed by Ronny Nilsson in
favor of Flextronics International USA, Inc. (Incorporated by
reference to Exhibit 10.31 of the Company's Annual Report on Form
10-K for fiscal year ended March 31, 1997.)
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SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
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<C> <S> <C>
10.25 Letter Agreement dated March 27, 1997 among the Company,
Astron Technologies Limited, Croton Technology Ltd. and
Stephen Rees regarding the termination of the Services
Agreement. (Incorporated by reference to Exhibit 10.32 of
the Company's Annual Report on Form 10-K for fiscal year
ended March 31, 1997.)
10.26 Letter Agreement dated March 27, 1997 between Astron Group
Limited and Stephen Rees regarding the termination of the
Supplemental Services Agreement. (Incorporated by reference
to Exhibit 10.33 of the Company's Annual Report on Form 10-K
for fiscal year ended March 31, 1997.)
10.27 Services Agreement between Flextronics Singapore Pte Limited
and Goh Chan Peng effective as of April 1, 1997.
(Incorporated by reference to Exhibit 10.34 of the Company's
Annual Report on Form 10-K for fiscal year ended March 31,
1997.)
10.28 Services Agreement between Astron Technologies Limited and
Goh Chan Peng effective as of April 1, 1997. (Incorporated
by reference to Exhibit 10.35 of the Company's Annual Report
on Form 10-K for fiscal year ended March 31, 1997.)
10.29 Services Agreement between Astron Technologies Limited and
Tsui Sung Lam effective as of April 1, 1997. (Incorporated
by reference to Exhibit 10.36 of the Company's Annual Report
on Form 10-K for fiscal year ended March 31, 1997.)
10.30 Services Agreement between Flextronics Singapore Pte Limited
and Tsui Sung Lam effective as of April 1, 1997.
(Incorporated by reference to Exhibit 10.37 of the Company's
Annual Report on Form 10-K for fiscal year ended March 31,
1997.)
10.31 ** Secured Full Recourse Promissory Note, dated November 6,
1997, executed by Michael E. Marks in favor of Flextronics
International USA, Inc.
12.1** Statement regarding computation of ratio of EBITDA to
Interest Expense.
12.2** Statement regarding computation of ratio of Total Debt to
EBITDA.
12.3** Statement regarding computation of ratio of earnings to
Fixed Charges.
21.1** Subsidiaries of Registrant.
23.1** Consent of Arthur Andersen.
23.2** Consent of Moore Stephens.
23.3** Consent of Allen & Gledhill (included in Exhibit 5.1).
24.1** Power of Attorney (included in the signature page of this
Registration Statement).
25.1** Statement of Eligibility of Trustee.
99.1** Letter of Transmittal.
</TABLE>
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* Confidential treatment requested for portions of agreement.
** Previously filed.
