===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-Q
(MARK ONE)
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended December 31, 1998
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ________ to _________
COMMISSION FILE NUMBER: 0-23354
FLEXTRONICS INTERNATIONAL LTD.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
SINGAPORE NOT APPLICABLE
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
------------------------
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)
------------------------
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes {X} No { }
At February 9, 1999, there were 47,333,739 Ordinary Shares, S$0.01 par
value, outstanding.
1
<PAGE>
FLEXTRONICS INTERNATIONAL LIMITED
INDEX
PART I. FINANCIAL INFORMATION
Page
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - December 31, 1998
and March 31, 1998 ........................................... 3
Condensed Consolidated Statements of Income - Three Months
Ended December 31, 1998 and 1997 ............................. 4
Condensed Consolidated Statements of Income - Nine Months
Ended December 31, 1998 and 1997 ............................. 5
Statements of Comprehensive Income - Three Months Ended
December 31, 1998 and 1997 ................................... 6
Statements of Comprehensive Income - Nine Months Ended
December 31, 1998 and 1997 ................................... 7
Condensed Consolidated Statements of Cash Flow - Nine Months
Ended December 31, 1998 and 1997 ............................. 8
Notes to Condensed Consolidated Financial Statements ......... 9-11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ...................................... 12-20
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ............................... 21
Signatures ..................................................... 22
2
<PAGE>
ITEM 1. FINANCIAL STATEMENTS
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
December 31, March 31,
1998 1998
----------- -----------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents .............................. $ 201,121 $ 89,390
Accounts receivable, net ............................... 179,906 155,125
Inventories ............................................ 197,141 157,077
Deferred income taxes and other current assets ......... 51,791 37,942
----------- -----------
Total current assets ........................... 629,959 439,534
Property and equipment, net .............................. 327,118 255,573
Other non-current assets ................................. 50,379 49,016
----------- -----------
Total assets ................................... $ 1,007,456 $ 744,123
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank borrowings and current portion of long-term debt .. $ 32,682 $ 43,209
Capital lease obligations .............................. 10,647 9,587
Accounts payable and accrued liabilities ............... 237,555 177,084
Other current liabilities .............................. 51,034 85,118
----------- -----------
Total current liabilities ...................... 331,918 314,998
----------- -----------
Long-term debt, net of current portion ................... 174,200 166,497
Capital lease obligations, net of current portion ........ 27,418 23,181
Deferred income taxes .................................... 4,424 4,812
Other long-term liabilities .............................. 9,054 18,832
Minority interest ........................................ 1,917 994
----------- -----------
Total long-term liabilities ................... 217,013 214,316
----------- -----------
Shareholders' Equity:
Ordinary Shares ........................................ 296 134
Additional paid-in capital ............................. 416,787 214,466
Retained earnings ...................................... 46,803 6,934
Accumulated other comprehensive loss ................... (5,361) (6,725)
----------- -----------
Total shareholders' equity ..................... 458,525 214,809
----------- -----------
Total liabilities and shareholders' equity ..... $ 1,007,456 $ 744,123
=========== ===========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Three months ended
December 31,
1998 1997
-------- --------
Net sales ...................................... $499,901 $295,000
Cost of sales .................................. 457,068 266,192
-------- --------
Gross margin .......................... 42,833 28,808
-------- --------
Operating expenses:
Selling, general and administrative .......... 17,397 13,773
Goodwill and intangibles amortization ........ 879 951
-------- --------
Total operating expenses .............. 18,276 14,724
-------- --------
Income from operations ......................... 24,557 14,084
Other income and expenses:
Interest expense ............................. 5,729 4,331
Interest income .............................. (1,295) (1,444)
Merger-related expenses ...................... -- 4,000
Other expense, net ........................... 2,504 59
-------- --------
Income before income taxes ............ 17,619 7,138
Provision for income taxes ..................... 2,126 1,197
-------- --------
Net income ............................ $ 15,493 $ 5,941
======== ========
Earnings per share:
Basic ........................................ $ 0.36 $ 0.15
Diluted ...................................... $ 0.34 $ 0.15
Shares used in computing per share amounts:
Basic ........................................ 43,267 38,568
Diluted ...................................... 46,061 40,606
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
Nine months ended
December 31,
1998 1997
---------- ----------
Net sales ..................................... $1,298,928 $ 782,013
Cost of sales ................................. 1,186,133 705,496
---------- ----------
Gross margin ......................... 112,795 76,517
---------- ----------
Operating expenses:
Selling, general and administrative ......... 48,307 38,143
Goodwill and intangibles amortization ....... 2,640 2,704
---------- ----------
Total operating expenses ............. 50,947 40,847
---------- ----------
Income from operations ........................ 61,848 35,670
Other income and expenses:
Interest expense ............................ 15,992 13,183
Interest income ............................. (2,765) (2,040)
Merger related expenses ..................... -- 4,000
Other expense, net .......................... 3,140 (1,438)
---------- ----------
Income before income taxes ........... 45,481 21,965
Provision for income taxes .................... 5,468 2,856
---------- ----------
Net income ........................... $ 40,013 $ 19,109
========== ==========
Earnings per share:
Basic ....................................... $ 0.95 $ 0.54
Diluted ..................................... $ 0.90 $ 0.51
Shares used in computing per share amounts:
Basic ....................................... 42,127 35,530
Diluted ..................................... 44,249 37,108
The accompanying notes are an integral part of these condensed consolidated
financial statements.
5
<PAGE>
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Three months ended
December 31,
1998 1997
-------- --------
Net income ..................................... $ 15,493 $ 5,941
Other comprehensive loss, net of tax:
Foreign currency translation adjustments ..... (2,061) (2,405)
-------- --------
Comprehensive income ........................... $ 13,432 $ 3,536
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
6
<PAGE>
FLEXTRONICS INTERNATIONAL LTD.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
Nine months ended
December 31,
1998 1997
-------- --------
Net income ........................................ $ 40,013 $ 19,109
Other comprehensive income (loss), net of tax :
Foreign currency translation adjustments ........ 1,200 (4,092)
-------- --------
Comprehensive income .............................. $ 41,213 $ 15,017
======== ========
The accompanying notes are an integral part of these condensed consolidated
financial statements.
7
<PAGE>
FLEXTRONICS INTERNATIONAL LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
December 31,
1998 1997
--------- ---------
<S> <C> <C>
Net cash provided by operating activities .................. $ 38,327 $ 4,435
--------- ---------
Cash flows from investing activities:
Purchases of property and equipment ...................... (95,152) (65,944)
Proceeds from sale of property and equipment ............. 5,905 1,095
Remaining payment for 40% interest in FICO ............... -- (2,200)
Effect of Energipilot and DTM acquisitions ............... -- 1,504
Other investments ........................................ (2,260) (2,756)
Payment of earnout and remaining purchase price related to
the acquisition of Astron ............................... (24,000) (6,250)
--------- ---------
Net cash used in investing activities ...................... (115,507) (74,551)
--------- ---------
Cash flows from financing activities:
Bank borrowings and proceeds from long-term debt ......... 63,334 3,220
Repayment of bank borrowings and long-term debt .......... (68,236) (120,750)
Repayment of capital lease obligations ................... (7,452) (7,298)
Repayment of loan from related party ..................... -- 2,975
Repayment of note payable ................................ -- (108)
Proceeds from exercise of stock options .................. 7,175 1,136
Proceeds from Employee Stock Purchase Plan ............... 1,166 --
Net proceeds from issuance of senior subordinated notes .. -- 145,687
Net proceeds from equity offering ........................ 194,000 95,297
--------- ---------
Net cash provided by financing activities .................. 189,987 120,159
--------- ---------
Effect of exchange rate changes on cash .................... (1,076) (869)
--------- ---------
Net increase ............................................... 111,731 49,174
Cash and cash equivalents at beginning of period ........... 89,390 24,159
--------- ---------
Cash and cash equivalents at end of period ................. $ 201,121 $ 73,333
========= =========
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
8
<PAGE>
FLEXTRONICS INTERNATIONAL LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1998
(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 in accordance 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, and should be read in conjunction with the annual audited
consolidated statements as of and for the year ended March 31, 1998 contained in
the Company's 1998 annual report on Form 10-K. 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
three and nine month periods ended December 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending March 31,
1999.
Note B - Inventories
Inventories consist of the following (in thousands):
December 31, March 31,
1998 1998
-------- --------
Raw materials ................ $159,951 $130,868
Work-in-process .............. 23,605 21,536
Finished goods ............... 13,585 4,673
-------- --------
$197,141 $157,077
======== ========
Note C - EARNINGS PER SHARE
In the third quarter of fiscal 1998, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." Under
SFAS No. 128, the Company presents two earnings per share ("EPS") amounts. Basic
EPS is computed using the weighted average number of Ordinary Shares outstanding
during the applicable periods. Diluted EPS is computed using the weighted
average number of Ordinary Shares and dilutive Ordinary Share equivalents
outstanding during the applicable periods. Ordinary Share equivalents include
dilutive 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 three and nine month periods ended December 31, 1998 and 1997 (in
thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Shares issued and outstanding (1) 43,267 37,647 42,127 34,609
Shares due to Astron (2) -- 921 -- 921
------- ------- ------- -------
Weighted average ordinary shares - basic 43,267 38,568 42,127 35,530
Ordinary Shares equivalents:
Stock options (3) 2,794 2,038 2,122 1,578
------- ------- ------- -------
Weighted average ordinary shares
and equivalents - diluted 46,061 40,606 44,249 37,108
======= ======= ======= =======
Net income $15,493 $ 5,941 $40,013 $19,109
======= ======= ======= =======
Basic earnings per share: $ 0.36 $ 0.15 $ 0.95 $ 0.54
======= ======= ======= =======
Diluted earnings per share: $ 0.34 $ 0.15 $ 0.90 $ 0.51
======= ======= ======= =======
</TABLE>
9
<PAGE>
(1) Ordinary Shares issued and outstanding based on the weighted average
method.
(2) In fiscal 1998, the Company had a provision for the Ordinary Shares to be
issued as purchase price due to Astron's former shareholders in June 1998.
In fiscal 1999, the Company elected to settle this purchase price
obligation in cash, which was its option. As a result, the provision for
Ordinary Shares was eliminated.
(3) Stock options of the Company calculated based on the treasury stock method
using average market price for the period, if dilutive.
Note D - COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Comprehensive Income" in the first
quarter of fiscal 1999. SFAS No. 130 requires companies to report an additional
measure of income on the income statement referred to as "comprehensive income"
or to create a separate financial statement that reflects comprehensive income.
The Company's comprehensive income includes net income and foreign currency
translation adjustments.
The following table sets forth the components of other comprehensive income
(loss) net of income tax as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended Three months ended
December 31, 1998 December 31, 1997
---------------------------------- ----------------------------------
Tax Tax
Pre-Tax (Expense) Net-of-Tax Pre-Tax (Expense) Net-of-Tax
Amount or Benefit Amount Amount or Benefit Amount
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Foreign currency translation
adjustments $(2,342) $ 281 $(2,061) $(2,890) $ 485 $(2,405)
------- ------- ------- ------- ------- -------
Other comprehensive income (loss) $(2,342) $ 281 $(2,061) $(2,890) $ 485 $(2,405)
======= ======= ======= ======= ======= =======
<CAPTION>
Nine months ended Nine months ended
December 31, 1998 December 31, 1997
---------------------------------- ----------------------------------
Tax Tax
Pre-Tax (Expense) Net-of-Tax Pre-Tax (Expense) Net-of-Tax
Amount or Benefit Amount Amount or Benefit Amount
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Foreign currency translation
adjustments $ 1,364 $ (164) $ 1,200 $(4,704) $ 612 $(4,092)
------- ------- ------- ------- ------- -------
Other comprehensive income (loss) $ 1,364 $ (164) $ 1,200 $(4,704) $ 612 $(4,092)
======= ======= ======= ======= ======= =======
</TABLE>
Note E - NEW ACCOUNTING STANDARDS
In 1998, the Company adopted SFAS No. 129, "Disclosure of information about
capital structure." SFAS No. 129 requires companies to disclose certain
information about their capital structure. SFAS No. 129 did not have a material
impact on the Company's consolidated financial statement disclosures.
In 1998, the FASB issued SFAS No. 131, "Disclosure about Segments of an
Enterprise and Related Information," which will be adopted by the Company in its
1999 annual consolidated financial statements. SFAS No. 131 requires companies
to report financial and descriptive information about its reportable operating
segments, including segment profit or loss, certain specific revenue and expense
items, and segment assets, as well as information about the revenues derived
from the Company's products and services, the countries in which the Company
earns revenues and hold assets, and major customers.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivatives
Instruments and Hedging Activities." SFAS No. 133 establishes accounting and
reporting standards requiring that every derivative instrument be recorded in
the balance sheet as either an asset or liability measured at its fair value. It
requires that changes in the derivative's fair value be recognized currently in
earnings unless specific hedge accounting criteria are met and that a company
must formally document, designate, and assess the effectiveness of transactions
that receive hedge accounting. SFAS No. 133 is effective for fiscal years
beginning after June 15, 1999 and cannot be applied retroactively. The Company
is currently evaluating this statement, but does not expect that it will have a
material effect on the Company's financial position or results of operations.
10
<PAGE>
Note F - EQUITY OFFERING
On December 7, 1998, the Company completed an equity offering of 2.7
million Ordinary Shares at $72.50 per share with net proceeds of $194.0 million.
Subsequent to December 7, 1998, the Company completed a two-for-one stock split
and the shares from this offering have been restated to 5.4 million Ordinary
Shares.
Note G - STOCK SPLIT
The Company set a record date of December 22, 1998 for a two-for-one stock
split to be effected as a bonus issue (the Singapore equivalent of a stock
dividend). The distribution of 23,534,229 Ordinary Shares occurred on January
11, 1999. This stock dividend has been reflected in the Company's financial
statements as of and for the three and nine months ended December 31, 1998,
unless otherwise noted. All share and per share amounts have been retroactively
restated to reflect the stock split.
11
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Except for historical information contained herein, the matters discussed
in this Form 10-Q 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. The Company undertakes no
obligation to publicly disclose any revisions to these forward-looking
statements to reflect events or circumstances occurring subsequent to filing
this Form 10-Q with the Securities and Exchange Commission. Readers are urged to
carefully review and consider the various disclosures made by the Company in
this report and in the Company's other reports filed with the Securities and
Exchange Commission, including its Form 10-K and its other Form 10-Qs, that
attempt to advise interested parties of the risks and factors that may affect
the Company's business. These forward-looking statements are subject to certain
risks and uncertainties, including, without limitation, those discussed in "Item
2-Management's Discussion and Analysis of Financial Condition and Results of
Operations--Certain Factors Affecting Future Operating Results," that could
cause future results to differ materially from historical results or anticipated
results.
OVERVIEW
Flextronics is a leading provider of advanced electronics manufacturing
services to original equipment manufacturers ("OEMs") in the telecommunications,
networking, computer, consumer electronics and medical device industries. The
Company provides a wide range of integrated services, from initial product
design to volume production and fulfillment. In addition, the Company provides
advanced engineering services, PCB layout, quickturn prototyping and test
development. Throughout the production process, the Company offers logistics
services, such as materials procurement, inventory management, and packaging and
distribution. In recent years, the Company has substantially expanded its
manufacturing capacity, technological capabilities and service offerings,
through both acquisitions and internal growth.
On March 31, 1998, the Company acquired Conexao Informatica Ltda., a
Brazil-based electronics manufacturing service provider and Altatron, Inc., an
electronics manufacturing service provider with facilities in California, Texas,
and Scotland (together with a related real estate company). On December 1, 1997,
the Company acquired DTM Products, Inc., a Colorado-based producer of injection
molded plastics for North American OEMs, and acquired Energipilot AB, a Swedish
company principally engaged in providing cables and engineering services to
Northern European OEMs. The acquisitions of Conexao, Altatron, DTM Products 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 such acquisitions did not have a material impact on its
consolidated financial statements. On October 30, 1997, the Company acquired 92%
of the outstanding shares of Neutronics, an Austrian electronics manufacturing
service provider with operations in Austria and Hungary. The acquisition was
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 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 acquisitions will not adversely affect the
Company. See "-Certain Factors Affecting Future Operating Results Risks of
Acquisitions."
In addition to acquisitions, the Company has substantially increased
overall capacity by expanding operations in its industrial parks in China,
Hungry and Mexico. As a result of these acquisitions and expansions, the
Company's overall capacity has increased from approximately 1.0 million square
feet at the end of Fiscal 1997 to over 2.7 million square feet at December 31,
1998, providing an extensive network of manufacturing facilities in the world's
major electronics markets - Asia, the Americas, and Europe. The Company is
continuing to expand operations and capacity at each of the industrial parks and
plans to establish and industrial park in Brazil, See "-Certain Factors
Affecting Future Operating Results -- Management of Expansion and
Consolidation."
12
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
statement of operations data expressed as a percentage of net sales.
Three months ended Nine months ended
December 31, December 31,
--------------- ---------------
1998 1997 1998 1997
----- ----- ----- -----
Net sales ........................... 100.0 100.0 100.0 100.0
Cost of sales ....................... 91.4 90.2 91.3 90.2
----- ----- ----- -----
Gross margin ...................... 8.6 9.8 8.7 9.8
Selling, general and administrative . 3.5 4.7 3.7 4.9
Goodwill and intangibles amortization 0.2 0.3 0.2 0.4
----- ----- ----- -----
Income from operations ............ 4.9 4.8 4.8 4.5
Merger-related expenses ............. -- 1.4 -- 0.5
Other expenses, net ................. 1.4 1.0 1.3 1.2
----- ----- ----- -----
Income before income taxes ........ 3.5 2.4 3.5 2.8
Provision for income taxes .......... 0.4 0.4 0.4 0.4
----- ----- ----- -----
Net income ........................ 3.1 2.0 3.1 2.4
===== ===== ===== =====
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 third
quarter of fiscal 1999 increased 69% to $499.9 million from $295.0 million for
the third quarter of fiscal 1998. Net sales for the nine months ended December
31, 1998 increased 66% to $1.3 billion from $782.0 million for the nine months
ended December 31, 1997. The increase in net sales was primarily due to
increased sales to certain existing customers and, to a lesser extent, from
sales to new customers. Sales for the third quarter also increased due to the
growth in the Company's manufacture and assembly of consumer electronics during
the holiday season. The Company's five largest customers in the third quarter of
fiscal 1999 accounted for approximately 62% of consolidated net sales with one
customer exceeding 20% and two customers exceeding 10%. During the third quarter
of fiscal 1998, the Company's five largest customers accounted for approximately
60% of consolidated net sales, with one customer exceeding 30% of consolidated
net sales and one customer exceeding 10%. During the first nine months ended
December 31, 1998, the Company's five largest customers accounted for
approximately 63% of consolidated net sales, with four customers exceeding 10%
of consolidated net sales. During the first nine months ended December 31, 1997,
the Company's five largest customers accounted for approximately 59% of
consolidated net sales with one customer exceeding 20% of consolidated net sales
and one customer exceeding 10%. See "-Certain Factors Affecting Operating
Results -- Customer Concentration; Dependence on Electronics Industry."
Gross Profit
Gross profit varies from period to period and is affected by, among other
things, product mix, component costs, customer's product life cycles, unit
volumes, expansion and consolidation of manufacturing facilities, pricing,
competition and new product introductions. Gross profit margin decreased to 8.6%
for the third quarter of fiscal 1999 from 9.8% for the same period of fiscal
1998. Gross profit margin decreased to 8.7% for the first nine months of the
current fiscal year from 9.8% for the first nine months of fiscal 1998. The
gross profit margin for the three and nine month periods ended December 31, 1998
was adversely affected by several factors, including changes in customer and
product mix, costs associated with expanding facilities in Mexico and Hungary,
and overhead costs associated with the startup of new customers. Prices paid to
the Company by its significant customers can vary 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. See "-Certain Factors Affecting Operating Results --Risks of Expansion
of Operations."
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") for the third quarter
of fiscal 1999 increased to $17.4 million from $13.8 million in the third
quarter of fiscal 1998 but decreased as a percentage of net sales to 3.5% for
the third quarter of fiscal 1999 from 4.7% for the third quarter of fiscal 1998.
SG&A increased from $38.1 million in the first nine months of fiscal 1998 to
$48.3 million in the first nine months of fiscal 1999, but decreased as a
percentage of net sales to 3.7% in fiscal 1999 from 4.9% in fiscal 1998. The
dollar increase in SG&A was mainly due to the inclusion
13
<PAGE>
of the SG&A from Conexao and Altatron after the acquisitions of these facilities
on March 31, 1998, increased staffing and related administrative expenses, and
increased expenses associated with the implementation of the Company's new
information system in the areas of maintenance, staffing and training. SG&A
expenses decreased as a percentage of net sales due to the increase in the
Company's net sales. The Company anticipates its SG&A expenses will continue to
increase in absolute terms in the future. However, to the extent that net sales
continue to grow faster than SG&A expenses, the Company expects SG&A expenses
may continue to decline as a percentage of net sales.
Goodwill and Intangibles Amortization
Goodwill 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 asset amortization for the third
quarter of fiscal 1999 decreased to $879,000 from $951,000 for the same period
of fiscal 1998. Goodwill and intangible assets amortization was $2.6 million and
$2.7 million for the first nine months of fiscal 1999 and fiscal 1998,
respectively. The decrease in goodwill and intangible assets amortization in the
third quarter of fiscal 1999 was primarily due to a write-off of goodwill in
March 1998 as a result of the closure of the Wales facility.
Interest Expense, net
Net interest expense was $4.4 million for the third quarter of fiscal 1999
and $2.9 million for the third quarter of fiscal 1998. Net interest expenses
increased to $13.2 million for the first nine months of fiscal 1999 from $11.1
million of the first nine months of fiscal 1998. The increase in net interest
expenses for the nine month period was primarily attributable to the Company's
issuance of $150.0 million principal amount of 8.75% senior subordinated notes
in October 1997 partially offset by interest income.
Merger-related Expenses
In the third quarter of fiscal 1998, the Company recorded a one-time charge
of $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, Neutronics 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.
Other Expenses, net
Other expense, net increased to a loss of $2.5 million for the third
quarter of fiscal 1999 compared to $59,000 loss for the third quarter of fiscal
1998. The increase in other expense, net for the third quarter of fiscal 1999
was primarily due to a $2.3 million foreign exchange loss related to foreign
currency transactions in Austria, Brazil, and Hungary. Other expense, net
increased to a loss of $3.1 in the first nine months of fiscal 1999 compared to
$1.4 million gain in the first nine months of fiscal 1998. The increase in
other expenses, net in the first nine months of fiscal 1999 was primarily due
to foreign exchange losses of $3.6 million. The $1.4 million gain in the first
nine months of fiscal 1998 consisted primarily of foreign exchange gain.
Provision for Income Taxes
The Company's consolidated effective tax rates were 12.0% and 13.0% for the
nine months ended December 31, 1998 and 1997, respectively.
The Company is structured as a holding company, conducting its operations
through manufacturing and marketing subsidiaries in Austria, Brazil, China,
Hungary, Malaysia, Mauritius, Mexico, Singapore, Sweden, the United Kingdom, and
the United States. These subsidiaries are subject to taxation in the country in
which they have been formed. The Company's Asian and Hungarian 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. The Company's United States subsidiaries have benefited from
net operating loss carry-forwards. See "- Certain Factors Affecting Operating
Results -- Risk of Increased Taxes."
Liquidity and Capital Resources
The Company has funded its operations from the proceeds of public offerings
of equity and debt securities, cash and cash equivalents generated from
operations, bank debt and lease financing of capital equipment. At December 31,
1998, the Company had cash and cash equivalents balances totaling $201.1
million, total bank and other debts totaling $206.9 million and $118.5 million
available for borrowing under its credit facility subject to compliance with
certain financial covenants.
Cash provided by operating activities was $38.3 million and $4.4 million
for the first nine months of fiscal 1999 and fiscal 1998, respectively. Cash
provided by operating activities increased primarily due to the increase in net
sales and improvement in accounts receivable collection. Depreciation and
amortization was $36.7 million in the first nine months of fiscal 1999 and $22.0
million in the first nine months of fiscal 1998.
Cash used in investing activities was $115.5 million and $74.6 million for
the first nine months of fiscal 1999 and fiscal 1998, respectively. Cash used in
investing activities for the first
14
<PAGE>
nine months of fiscal 1999 was primarily related to capital expenditures of
$95.2 million to purchase equipment in Brazil, China, Hungary, Mexico, and
Sweden and payment of $24.0 million to the former shareholders of Astron for the
remaining purchase price payable in connection with the Company's acquisition of
Astron. Cash used in investing activities for the first nine months of fiscal
1998 consisted primarily of expenditures for new and expanded facilities,
including plant construction at the Company's industrial parks in Doumen, China
and Guadalajara, Mexico, Sao Paulo, Brazil, and San Jose, California.
Net cash provided by financing activities was $190.0 million and $120.2
million during the nine months ended December 31, 1999 and 1998, respectively.
Cash provided by financing activities for the first nine months of fiscal 1999
resulted primarily from our December 1998 equity offering of 2.7 million
Ordinary Shares (5.4 million shares after giving effect to our recent
two-for-one stock split) with net proceeds of $194.0 million. Net cash provided
by financing activities for the first nine months of fiscal 1998 resulted
primarily from net proceeds from 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
debt of $128.0 million.
The Company anticipates expending an aggregate of approximately $16.0 to
$18.0 million, of which approximately $14.0 million has already been expended,
to implement a new management information system, and anticipates funding these
expenditures with cash from operations and proceeds form the Company's recent
equity offering. See "- Certain Factors Affecting Operating Results --
Replacement of management Information Systems; Year 2000 Compliance."
The Company anticipates that its working capital requirements will increase
in order to support anticipated increases in its business. In addition, the
Company anticipates incurring significant capital expenditures in order to
support the anticipated expansions of its facilities in Brazil, China, Hungary
and Mexico. Future liquidity needs will depend on fluctuations in inventory
levels, the timing of expenditures by the Company on new equipment, the extent
to which the Company utilizes leases to finance new facilities and equipment,
levels of shipments by the Company and changes in volumes of customer orders.
The Company believes that its existing cash balances, together with anticipated
cash flows from operations and amounts available under its credit facilities,
will be sufficient to fund its operations at its current level of business. To
the extent the Company finances its working capital and capital expenditures
through increased borrowings, its interest expense may increase. From time to
time, the Company may consider alternative financing opportunities, including
certain off-balance sheet transactions such as sale leasebacks or receivable
financings. See "- Certain Factors Affecting Operating Results -- Risks of
Expansion of Operations."
Qualitative and Quantitative Disclosures About Market Risk
There were no material changes during the three or nine months ended
December 31, 1998 to the Company's exposure to market risk for changes in
interest rates. There were no material changes during the three or nine months
ended December 31, 1998 to the Company's foreign currency hedging programs.
Certain Factors Affecting Operating Results
You should carefully consider the following factors as well as the other
information contained or incorporated by reference in this filing before
deciding to invest in the Ordinary Shares of Flextronics. These factors could
cause our future results to differ materially from those expressed or implied in
forward-looking statements made by us.
Risks of Expansion of Operations
We have grown rapidly in recent periods, and this growth may not continue.
Internal growth will require us to develop new customer relationships and expand
existing ones, improve our operational and information systems and further
expand our manufacturing capacity.
We plan to further expand our manufacturing capacity by expanding our
facilities and by adding new equipment. Such expansion involves significant
risks. For example:
o we may not be able to attract and retain the management personnel and
skilled employees necessary to support expanded operations;
o we may not efficiently and effectively integrate new operations, expand
existing ones and manage geographically dispersed operations;
o we may incur cost overruns;
15
<PAGE>
o we may encounter construction delays, equipment delays or shortages, labor
shortages and disputes and production start-up problems that could
adversely affect our growth and our ability to meet customers' delivery
schedules; and
o we may not be able to obtain funds for this expansion, and we may not be
able to obtain loans or operating leases with attractive terms.
In addition, we expect to incur new fixed operating expenses associated
with our expansion efforts, including substantial increases in depreciation
expense and rental expense, that will increase our cost of sales. If our
revenues do not increase sufficiently to offset these expenses, our operating
results would be adversely affected. Our expansion, both through acquisitions
and internal growth, has contributed to our incurring significant accounting
charges and experiencing volatility in our operating results. We may continue to
experience volatility in operating results in connection with future expansion
efforts.
Risks of Acquisitions
Acquisitions have represented a significant portion of the Company's growth
strategy, and the Company intends to continue to pursue attractive acquisition
opportunities. Our acquisitions during the last two fiscal years represented a
significant expansion of our operations. Acquisitions involve a number of risks
and challenges, including:
o diversion of management's attention;
o the need to integrate acquired operations;
o potential loss of key employees and customers of the acquired companies;
o lack of experience operating in the geographic market of the acquired
business; and
o an increase in our expenses and working capital requirements.
To integrate acquired operations, we must implement our management
information systems and operating systems and assimilate and manage the
personnel of the acquired operations. The difficulties of this integration may
be further complicated by geographic distances. The integration of acquired
businesses may not be successful and could result in disruption to other parts
of our business.
Any of these and other factors could adversely affect our ability to
achieve anticipated levels of profitability at acquired operations or realize
other anticipated benefits of an acquisition. Furthermore, any future
acquisitions may require debt or equity financing, which could increase our
leverage or be dilutive to our existing shareholders. No assurance can be given
that we will consummate any acquisitions in the future.
Variability of Customer Requirements and Operating Results
Electronics manufacturing service providers must provide increasingly rapid
product turnaround for their customers. We generally do not obtain firm,
long-term purchase commitments from our customers, and over the past few years
we have experienced reduced lead-times in customer orders. Customers may cancel
their orders, change production quantities or delay production for a number of
reasons. Cancellations, reductions or delays by a significant customer or by a
group of customers would adversely affect our results of operations. In addition
to the variable nature of our operating results due to the short-term nature of
our customers' commitments, other factors may contribute to significant
fluctuations in our results of operations. These factors include:
o the timing of customer orders;
o the volume of these orders relative to our capacity;
o market acceptance of customers' new products;
o changes in demand for customers' products and product obsolescence;
o the timing of our expenditures in anticipation of future orders;
16
<PAGE>
o our effectiveness in managing manufacturing processes;
o changes in the cost and availability of labor and components;
o changes in our product mix;
o changes in economic conditions;
o local factors and events that may affect our production volume (such as
local holidays); and
o seasonality in customers' product requirements.
We make significant decisions, including the levels of business that we
will seek and accept, production schedules, component procurement commitments,
personnel needs and other resource requirements, based on our estimates of
customer requirements. The short-term nature of our customers' commitments and
the possibility of rapid changes in demand for their products reduces our
ability to estimate accurately future customer requirements. On occasion,
customers may require rapid increases in production, which can stress our
resources and reduce margins. Although we have increased our manufacturing
capacity and plan further increases, there can be no assurance we will have
sufficient capacity at any given time to meet our customers' demands. In
addition, because many of our costs and operating expenses are relatively fixed,
a reduction in customer demand can adversely affect our gross margins and
operating income.
Customer Concentration; Dependence on Electronics Industry
Sales to our five largest customers had represented a majority of our net
sales in recent periods. The identity of our principal customers has varied from
year to year, and our principal customers may not continue to purchase services
from us at current levels, if at all. Significant reductions in sales to any of
these customers, or the loss of major customers, would have a material and
adverse effect on us. We can not assure the timely replacement of expired,
canceled, or reduced contracts with new business. See "--Variability of Customer
Requirements and Operating Results."
Factors affecting the electronics industry in general could have a material
adverse effect on our customers and, as a result on us. Our customers' markets
are characterized by rapidly changing technology and evolving industry
standards. This frequently results in short product life cycles. Our success
will depend to a significant extent on the success achieved by our customers in
developing and marketing their products, some of which are new and untested. If
customers' products become obsolete or fail to gain widespread commercial
acceptance, our business may be materially and adversely affected. Our
customers' markets are also subject to economic cycles and are likely to
experience recessionary periods in the future. A recession in the industries we
serve could have a materials adverse effect on us.
Year 2000 Compliance
The Company is aware of the issues associated with programming code in
existing computer systems as the Year 2000 approaches. The Year 2000 computer
issue refers to a condition in computer software where a two digit field rather
than a four digit field is used to distinguish a calendar year. Unless
corrected, some computer programs could be unable to function on January 1, 2000
(and thereafter until corrected), as they will be unable to distinguish the
correct date. Such an uncorrected condition could significantly interfere with
the conduct of the Company's business, could result in disruption of its
operations, and could subject it to potentially significant legal liabilities.
The Company is primarily addressing the Year 2000 issues by replacing its
management information system with a new enterprise management information
system that is designed to provide enhanced functionality. We have been advised
that our new enterprise management information system is Year 2000 compliant.
However, there can be no assurance that the new system will be Year 2000
compliant or that it will be implemented by January 1, 2000. The new system will
significantly affect many aspects of our business, including our manufacturing,
sales and marketing and accounting functions. In addition, the successful
implementation of this system will be important to our future growth. The
Company currently has implemented this new information system in certain
facilities in Europe and North America and anticipates that the installation of
the new system will be completed in September 1999.
The Year 2000 issue also could affect the Company's infrastructure and
production lines. The possibility also exists that the Company could
inadvertently fail to correct a Year 2000 problem
17
<PAGE>
with a mechanical equipment microcontroller. The Company believes the impact of
such an occurrence would be minor, as substantial Year 2000 compliant equipment
additions and upgrades have occurred in recent years. However, sufficient
testing to date has not been completed to fully validate the readiness of its
microprocessors. Additional testing is planned during fiscal 1999 to reasonably
ensure their Year 2000 readiness.
The Company has sent a Year 2000 Readiness Questionaire to most of its
critical and significant suppliers and the Company is in the process of
identifying and devoting resources to ensure Year 2000 compliance of these
suppliers. The Company may need to find alternative suppliers based on the
results of the questionaires. Their can be no assurance that the Company will be
able to find suitable alternative suppliers and contract with them on reasonable
prices and terms, and such inability could have a material and adverse impact on
the Company's business and results of operations. The Company is currently
working with many of its major customers to ensure year 2000 compliance and is
currently being audited by many of its customers. The Company intends to review
its contracts with customers and suppliers with respect to responsibility for
Year 2000 issues and to seek to address such issues in future agreements with
customers and suppliers.
The Company has currently incurred in excess of $14.0 million in total
hardware, software, and system related costs in connection with remediation of
Year 2000 issues. These costs are primarily costs associated with the
implementation of the Company's new information system and have primarily been
capitalized as fixed assets. The Company anticipates expending an additional
$2.0 to $4.0 million before January 1, 2000 to complete the implementation of
the new information system and address any Year 2000 compliance issues. There
can be no assurances that the cost estimates associated with the Company's Year
2000 issues will prove to be accurate or that the actual costs will not have a
material adverse effect on the Company's results of operations and financial
condition.
Although the Company currently anticipates the installation of the new
system will be completed in September 1999, it could be delayed until later.
Implementation of the new system could cause significant disruption in
operations. In the event the new information system is not implemented by
September 1999, the Company's contingency plan is to upgrade the existing
information system currently in use by a majority of the Company's operations to
a new version which the Company has been advised is Year 2000 compliant. The
Company estimates the cost to upgrade the existing information system to be
approximately $500,000. There can be no assurance that such measures will
prevent the occurrence of Year 2000 problems, which can have a material adverse
effect upon the Company's business, operating results and financial condition.
Risk of Increased Taxes
We have structured our 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. Our taxes could increase if these
tax incentives are not renewed upon expiration, or tax rates applicable to us
are increased. Substantially all of the products manufactured by our Asian
subsidiaries are sold to customers based in North America and Europe. We believe
that profits from our Asian operations are not sufficiently connected to
jurisdictions in North America or Europe to give rise to income taxation there.
However, tax authorities in jurisdictions in North America and Europe could
challenge the manner in which profits are allocated among our subsidiaries, and
we may not prevail in any such challenge. If our Asian profits became subject to
income taxes in such other jurisdictions, our worldwide effective tax rate could
increase.
Significant Leverage
Our level of indebtedness presents risks to investors, including:
o the possibility that we may be unable to generate cash sufficient to pay
the principal of and interest on the indebtedness when due;
o making us more vulnerable to economic downturns;
o limiting our ability to pursue new business opportunities; and reducing our
flexibility in responding to changing business and economic conditions.
Risks of Competition
The electronics manufacturing services industry is extremely competitive
and includes hundreds of companies, several of which have achieved substantial
market share. Current and prospective customers also evaluate our capabilities
against the merits of internal production. Certain of our competitors, including
Solectron Corporation and SCI Systems, have substantially greater market shares
than us, and substantially greater manufacturing, financial, research and
development and
18
<PAGE>
marketing resources. In recent years, many participants in the industry,
including us, have substantially expanded their manufacturing capacity. If
overall demand for electronics manufacturing services should decrease, this
increased capacity could result in substantial pricing pressures, which could
adversely affect our operating results.
Risks of International Operations
The geographical distances between Asia, the Americas and Europe create a
number of logistical and communications challenges. Our manufacturing operations
are located in a number of countries, including Austria, Brazil, China, Hungary,
Malaysia, Mexico, Sweden, the United Kingdom and the United States. As a result,
we are affected by economic and political conditions in those countries,
including:
o fluctuations in the value of currencies;
o changes in labor conditions;
o longer payment cycles;
o greater difficulty in collecting accounts receivable;
o burdens and costs of compliance with a variety of foreign laws;
o political and economic instability;
o increases in duties and taxation;
o imposition of restrictions on currency conversion or the transfer of funds;
o limitations on imports or exports;
o expropriation of private enterprises; and
o reversal of the current policies (including favorable tax and lending
policies) encouraging foreign investment or foreign trade by our host
countries.
The attractiveness of our services to our U.S. customers can be affected by
changes in 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
addition, some countries in which we operate, such as Brazil, Mexico and
Malaysia, have experienced periods of slow or negative growth, high inflation,
significant currency devaluations and limited availability of foreign exchange.
Furthermore, in countries such as Mexico and China, governmental authorities
exercise significant influence over many aspects of the economy, and their
actions could have a significant effect on Flextronics. Finally, we could be
adversely affected by inadequate infrastructure, including lack of adequate
power and water supplies, transportation, raw materials and parts in countries
in which we operate.
Currency Fluctuations
With the acquisitions of the Karlskrona facilities, Neutronics and Conexao,
a significant portion of our business is conducted in the Swedish kronor,
Austrian schilling and Brazilian real, respectively. In addition, some of our
costs, such as payroll and rent, are denominated in currencies such as the
Singapore dollar, the Hong Kong dollar, the Malaysian ringgit, the Hungarian
forint, the Mexican peso, and the British pound, as well as the kronor, the
schilling and the real. In recent years, the Hungarian forint, Brazilian real
and Mexican peso have experienced significant devaluations, and in January 1999
the Brazilian real experienced further significant devaluations. Changes in
exchange rates between these and other currencies and the U.S. dollar will
affect our cost of sales and operating margins. We cannot predict the impact of
future exchange rate fluctuations. Our European and Latin American operations
use financial instruments, primarily forward purchase contracts, to hedge
certain fixed Japanese yen, German deutschmark, U.S. dollar, and other foreign
currency commitments arising from trade accounts payable and fixed purchase
obligations. Because we hedge only fixed obligations, we do not expect that
these hedging activities
19
<PAGE>
will have a material effect on our results of operations or cash flows. However,
our hedging activities may be unsuccessful, and we may change or reduce our
hedging activities in the future.
20
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(10.1) Second amendment to the amended and restated revolving
credit agreement dated as of June 26, 1998 Among
Flextronics International USA, Inc., Bankboston, N.A. and
the lending institutions listed on Schedule 1 thereto.
(10.2) Second amendment to the amended and restated revolving
credit agreement dated as of June 26, 1998 among
Flextronics International Ltd., Bankboston, N.A. and the
lending institutions listed on Schedule 1 thereto.
(10.3) Third amendment to the amended and restated revolving
credit agreement dated as of September 29, 1998 among
Flextronics International USA, Inc., Bankboston, N.A. and
the lending institutions listed on Schedule 1 thereto.
(10.4) Third amendment to the amended and restated revolving
credit agreement dated as of September 29, 1998 among
Flextronics International, Ltd., Bankboston, N.A. and the
lending institutions listed on Schedule 1 thereto.
(27) Financial data schedule as of December 31, 1998 and for the
nine months ended December 31, 1998.
(b) Reports on Form 8-K
The Company has filed no reports on Form 8-K during the quarter
ended December 31, 1998.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
FLEXTRONICS INTERNATIONAL LTD.
(Registrant)
Date: February 16, 1999 /s/ MICHAEL E.MARKS
----------------------------
Michael E. Marks
Chief Executive Officer
Date: February 16, 1999 /s/ ROBERT R.B. DYKES
----------------------------
Robert R.B. Dykes
Senior Vice president of Finance
and Administration and Chief
Financial Officer (principal
Financial and accounting
officer)
22
- --------------------------------------------------------------------------------
SECOND AMENDMENT
TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
- --------------------------------------------------------------------------------
Second Amendment dated as of June 26, 1998 to Amended and Restated
Revolving Credit Agreement (the "Second Amendment"), by and among FLEXTRONICS
INTERNATIONAL USA, INC., a California corporation (the "Borrower"), BANKBOSTON,
N.A. (formerly known as The First National Bank of Boston) and the other lending
institutions listed on Schedule 1 to the Credit Agreement (as hereinafter
defined) (the "Banks"), amending certain provisions of the Amended and Restated
Revolving Credit Agreement dated as of January 14, 1998 (as amended and in
effect from time to time, the "Credit Agreement") by and among the Borrower, the
Banks and BankBoston, N.A. as agent for the Banks (the "Agent"). Terms not
otherwise defined herein which are defined in the Credit Agreement shall have
the same respective meanings herein as therein.
WHEREAS, the Borrower and the Banks have agreed to modify certain terms and
conditions of the Credit Agreement as specifically set forth in this Second
Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ss.1. Amendment to Section 1.1 of the Credit Agreement. Section 1.1 of the
Credit Agreement is hereby amended as follows:
(a) the definition of "Applicable Margin" is hereby amended by deleting
such definition in its entirety and restating it as follows:
Applicable Margin. For each period commencing on an Adjustment Date
through the date immediately preceding the next Adjustment Date (each a
"Rate Adjustment Period"), the Applicable Margin shall be the applicable
margin set forth below with respect to FIL's Pricing Leverage Ratio, as
determined for the fiscal period of FIL and its Subsidiaries ending
immediately prior to the applicable Rate Adjustment Period.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
Base Eurodollar Letter of Acceptance Fee Commitment
Level Pricing Leverage Ratio Rate Rate Credit Rate Fee
Loans Loans Fees Rate
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
I Less than 1.50:1.00 0 50.00 50.00 50.00 20.00
- ----------------------------------------------------------------------------------------------------------
II Equal to or greater than 0 62.50 62.50 62.50 20.00
1.50:1.00 but less than
2.00:1.00
- ----------------------------------------------------------------------------------------------------------
III Equal to or greater than 0 87.50 87.50 87.50 25.00
2.00:1.00 but less than
2.50:1.00
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
IV Equal to or greater than 0 112.50 112.50 112.50 25.00
2.50:1.00 but less than
3.00:1.00
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-2-
<TABLE>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
V Equal to or greater than 0 137.50 137.50 137.50 25.00
3.00:1.00 but less than
3.50:1.00
- ----------------------------------------------------------------------------------------------------------
VI Equal to or greater than 0 162.50 162.50 162.50 25.00
3.50:1.00 but less than
4.00:1.00
- ----------------------------------------------------------------------------------------------------------
VII Equal to or greater than 0 187.50 187.50 187.50 25.00
4.00:1.00
- ----------------------------------------------------------------------------------------------------------
</TABLE>
Notwithstanding the foregoing, (a) for purposes of interest on
Revolving Credit Loans outstanding, the Letter of Credit Fees, the
Acceptance Fee Rate and the Commitment Fee Rate payable during the period
commencing on June 26, 1998 through the date immediately preceding the
first Adjustment Date to occur after the fiscal quarter ended June 26,
1998, the Applicable Margin shall be at Level III set forth above, and (b)
if the Borrower fails to deliver any Compliance Certificate pursuant to
ss.9.4(a) hereof then, for the period commencing on the next Adjustment
Date to occur subsequent to such failure through the date immediately
following the date on which such Compliance Certificate is delivered, the
Applicable Margin shall be at the highest Applicable Margin set forth
above.
(b) the definition of "Excluded Subsidiaries" is hereby amended by deleting
such definition in its entirety and restating it as follows:
Excluded Subsidiaries. Collectively, Astron Technologies Ltd.,
Flextronics Industrial (Shenzhen) Limited, Flextronics Computer (Shekou)
Limited, Zhuhai Daomen Chao Yi Technology Co. Ltd., Zhuhai Daomen Chao Yi
Electronics Co. Ltd., Flex Asia (UK) Ltd., EnergiPilot AB, Proactive, Inc.,
Marathon Business Park LLC, any Unrestricted Subsidiary and any other
Subsidiary formed or acquired after the Closing Date and which is not
required to become a Guarantor pursuant to ss.9.14 hereof and which does
not elect to become a Guarantor pursuant to ss.7 hereof; provided, however,
to the extent any Person which is an Excluded Subsidiary hereunder
subsequently elects or is otherwise required to become a Guarantor
hereunder and complies with ss.7.3 hereof, such Person shall cease being an
Excluded Subsidiary hereunder on the date all the conditions of ss.7.3 have
been satisfied.
(c) the definition of "Total Funded Indebtedness" is hereby amended by
deleting the words "less the sum of (a) cash of FIL and its Subsidiaries
existing on the date of determination plus (b) Investments of FIL and its
Subsidiaries made pursuant to ss.10.3(a), (b) or (c) of the FIL Credit
Agreement" from such definition;
(d) by inserting the following definitions in the appropriate alphabetical
order:
Pricing Leverage Ratio. As at any date of determination, the ratio of
(a) Total Pricing Funded Indebtedness of FIL and its Subsidiaries
outstanding on such date to (b) the EBITDA of FIL and its Subsidiaries for
the period of four (4) consecutive fiscal quarters (treated as a single
accounting period) most recently ended on such date.
Restricted Subsidiary. Any Subsidiary of FIL which is not an
Unrestricted Subsidiary. Neither FIL nor any Subsidiary shall have the
right to change the status of a Restricted Subsidiary to an Unrestricted
Subsidiary, but FIL or any Subsidiary shall have the right to change the
status of an Unrestricted Subsidiary to a Restricted Subsidiary, subject to
compliance with the provisions of ss.9.14 hereof.
<PAGE>
-3-
Total Pricing Funded Indebtedness. All Indebtedness of FIL and its
Subsidiaries for borrowed money (including without limitation, all
guarantees by such Person of Indebtedness of others for borrowed money),
purchase money Indebtedness and with respect to Capitalized Leases,
determined on a consolidated basis in accordance with generally accepted
accounting principles, less the sum of (a) cash of FIL and its Subsidiaries
existing on the date of determination plus (b) Investments of FIL and its
Subsidiaries made pursuant to ss.10.3(a), (b) or (c) of the FIL Credit
Agreement.
Unrestricted Subsidiary. Collectively, (a) Neutronics Electronic
Industries Holdings AG, Althofen Electronics GmbH, HTR Technical Resources
Kft, Ecoplast Kft, Conexao Informatica Ltda, Flextronics do Brazil
Servicios Ltda and (b) any other Subsidiary of FIL, direct or indirect, as
to which (i) such Subsidiary conducts substantially all of its business in
countries other than the United States of America and is organized under
the laws of a jurisdiction other than the United States of America and the
States (or the District of Columbia) thereof; (ii) the principal operations
of such Subsidiary are not located in the United States; (iii) FIL has
provided the Agent with an officer's certificate certifying that FIL has
designated such Subsidiary as an Unrestricted Subsidiary at or prior to the
time such Subsidiary is formed or acquired by FIL, as the case may be, and
FIL has provided written notice to the Agent in reasonable detail of such
designation within five (5) Business Days after designation thereof; (iv)
FIL owns not less than eighty percent (80%) of the capital stock of such
Subsidiary and not less than eighty percent (80%) of the Voting Stock of
such Subsidiary; (v) all of such Subsidiary's liabilities (other than
liabilities permitted to be guaranteed by FIL pursuant to the FIL Credit
Agreement hereof) are non-recourse as to FIL or any Restricted Subsidiary;
and (vi) such Subsidiary does not own any capital stock of, or own or hold
any lien, security interest or other encumbrance on, any property of FIL or
any other Restricted Subsidiary, provided, however, no Subsidiary shall be
subsequently designated as an Unrestricted Subsidiary if any Default or
Event of Default has occurred and is continuing or would exist immediately
after giving effect to such designation.
ss.2. Amendment to Section 9 of the Credit Agreement. Section 9 of the
Credit Agreement is hereby amended by inserting the following immediately after
the end of the text of ss.9.16:
9.17. Unrestricted Subsidiaries. The Company shall at all times
designate persons constituting a majority of the directors (or members of
the governing body) of, and at all times have the power, directly or
indirectly, to direct the management and polices of each Unrestricted
Subsidiary.
ss.3. Amendment to Credit Agreement. Notwithstanding anything to the
contrary contained in the Credit Agreement, from and after the date hereof the
Borrowers shall not be permitted to request any Revolving Credit Loans to be
denominated in an Optional Currency, shall only be permitted to have Revolving
Credit Loans denominated in Dollars and, to the extent there are any Revolving
Credit Loans denominated in any Optional Currency, shall be required to repay
such Revolving Credit Loans on the date hereof.
ss.4. Conditions to Effectiveness. This Second Amendment shall not become
effective until the Agent receives a counterpart of this Second Amendment,
executed by the Borrower, the Guarantors and the Majority Banks.
ss.5. Representations and Warranties. The Borrower hereby repeats, on and
as of the date hereof, each of the representations and warranties made by it in
ss.8 of the Credit Agreement, and such
<PAGE>
-4-
representations and warranties remain true as of the date hereof (except to the
extent of changes resulting from transactions contemplated or permitted by the
Credit Agreement and the other Loan Documents and changes occurring in the
ordinary course of business that singly or in the aggregate are not materially
adverse, and to the extent that such representations and warranties relate
expressly to an earlier date), provided, that all references therein to the
Credit Agreement shall refer to such Credit Agreement as amended hereby. In
addition, the Borrower hereby represents and warrants that the execution and
delivery by the Borrower of this Second Amendment and the performance by the
Borrower of all of its agreements and obligations under the Credit Agreement as
amended hereby are within the corporate authority of each the Borrower and has
been duly authorized by all necessary corporate action on the part of the
Borrower.
ss.6. Ratification, Etc. Except as expressly amended hereby, the Credit
Agreement and all documents, instruments and agreements related thereto,
including, but not limited to the Security Documents, are hereby ratified and
confirmed in all respects and shall continue in full force and effect. The
Credit Agreement and this Second Amendment shall be read and construed as a
single agreement. All references in the Credit Agreement or any related
agreement or instrument to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended hereby.
ss.7. No Waiver. Nothing contained herein shall constitute a waiver of,
impair or otherwise affect any Obligations, any other obligation of the Borrower
or any rights of the Agent or the Banks consequent thereon.
ss.8. Counterparts. This Second Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
ss.9. Governing Law. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REFERENCE TO CONFLICT OF LAWS).
<PAGE>
-5-
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
as a document under seal as of the date first above written.
FLEXTRONICS INTERNATIONAL USA, INC
By:__________________________________
Title:
BANKBOSTON, N.A.
By:__________________________________
Title:
ABN AMRO BANK N.V.
By: _________________________________
Name:
Title:
THE BANK OF NOVA SCOTIA
By: _________________________________
Name:
Title:
BANQUE NATIONALE DE PARIS, SAN
FRANCISCO BRANCH
By: _________________________________
Name:
Vice President
PARIBAS
By: _________________________________
Name:
Title:
<PAGE>
-6-
COMERICA BANK
By: _________________________________
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By: _________________________________
Name:
Title:
SUMITOMO BANK OF CALIFORNIA
By: _________________________________
Name:
Title:
<PAGE>
-7-
RATIFICATION OF GUARANTY
Each of the undersigned guarantors hereby acknowledges and consents to the
foregoing Second Amendment as of June 26, 1998, and agrees that each of the
Guarantees dated as of January 14, 1998 from each of the undersigned Guarantors
remain in full force and effect, and each of the Guarantors confirms and
ratifies all of its obligations thereunder.
FLEXTRONICS INTERNATIONAL LTD.
By:__________________________________
Title:
FLEXTRONICS INTERNATIONAL (UK) LTD.
By:__________________________________
Title:
FLEXTRONICS MANUFACTURING (HK) LTD.
By:__________________________________
Title:
FLEXTRONICS SINGAPORE PTE. LTD.
By:__________________________________
Title:
FLEXTRONICS HOLDING (UK) LTD.
By:__________________________________
Title:
<PAGE>
-8-
FLEXTRONICS MALAYSIA SDN BHD
By:__________________________________
Title:
FLEXTRONICS INTERNATIONAL
MARKETING (L) LTD.
By:__________________________________
Title:
FLEXTRONICS HOLDINGS AB
By:__________________________________
Title:
FLEXTRONICS INTERNATIONAL
SWEDEN AB
By:__________________________________
Title:
ASTRON GROUP LIMITED
By:__________________________________
Title:
DTM PRODUCTS CORPORATION
By:__________________________________
Title:
- --------------------------------------------------------------------------------
SECOND AMENDMENT
TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
- --------------------------------------------------------------------------------
Second Amendment dated as of June 26, 1998 to Amended and Restated
Revolving Credit Agreement (the "Second Amendment"), by and among FLEXTRONICS
INTERNATIONAL LTD., a company incorporated in Singapore (the "Borrower"),
BANKBOSTON, N.A. (formerly known as The First National Bank of Boston) and the
other lending institutions listed on Schedule 1 to the Credit Agreement (as
hereinafter defined) (the "Banks"), amending certain provisions of the Amended
and Restated Revolving Credit Agreement dated as of January 14, 1998 (as amended
and in effect from time to time, the "Credit Agreement") by and among the
Borrower, the Banks and BankBoston, N.A. as agent for the Banks (the "Agent").
Terms not otherwise defined herein which are defined in the Credit Agreement
shall have the same respective meanings herein as therein.
WHEREAS, the Borrower and the Banks have agreed to modify certain terms and
conditions of the Credit Agreement as specifically set forth in this Second
Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ss.1. Amendment to Section 1.1 of the Credit Agreement. Section 1.1 of the
Credit Agreement is hereby amended as follows:
(a) the definition of "Applicable Margin" is hereby amended by deleting
such definition in its entirety and restating it as follows:
Applicable Margin. For each period commencing on an Adjustment Date
through the date immediately preceding the next Adjustment Date (each a
"Rate Adjustment Period"), the Applicable Margin shall be the applicable
margin set forth below with respect to the Company's Pricing Leverage
Ratio, as determined for the fiscal period of the Company and its
Subsidiaries ending immediately prior to the applicable Rate Adjustment
Period.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Base Eurodollar Letter of Acceptance Fee Commitment
Level Pricing Leverage Ratio Rate Rate Credit Rate Fee
Loans Loans Fees Rate
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
I Less than 1.50:1.00 0 50.00 50.00 50.00 20.00
- -------------------------------------------------------------------------------------------------------------
II Equal to or greater than 0 62.50 62.50 62.50 20.00
1.50:1.00 but less than
2.00:1.00
- -------------------------------------------------------------------------------------------------------------
III Equal to or greater than 0 87.50 87.50 87.50 25.00
2.00:1.00 but less than
2.50:1.00
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
IV Equal to or greater than 0 112.50 112.50 112.50 25.00
2.50:1.00 but less than
3.00:1.00
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
-2-
<TABLE>
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
V Equal to or greater than 0 137.50 137.50 137.50 25.00
3.00:1.00 but less than
3.50:1.00
- -------------------------------------------------------------------------------------------------------------
VI Equal to or greater than 0 162.50 162.50 162.50 25.00
3.50:1.00 but less than
4.00:1.00
- -------------------------------------------------------------------------------------------------------------
VII Equal to or greater than 0 187.50 187.50 187.50 25.00
4.00:1.00
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Notwithstanding the foregoing, (a) for purposes of interest on
Revolving Credit Loans outstanding, the Letter of Credit Fees, the
Acceptance Fee Rate and the Commitment Fee Rate payable during the period
commencing on June 26, 1998 through the date immediately preceding the
first Adjustment Date to occur after the fiscal quarter ended June 26,
1998, the Applicable Margin shall be at Level III set forth above, and (b)
if the Company fails to deliver any Compliance Certificate pursuant to
ss.9.4(c) hereof then, for the period commencing on the next Adjustment
Date to occur subsequent to such failure through the date immediately
following the date on which such Compliance Certificate is delivered, the
Applicable Margin shall be at the highest Applicable Margin set forth
above.
(b) the definition of "Excluded Subsidiaries" is hereby amended by deleting
such definition in its entirety and restating it as follows:
Excluded Subsidiaries. Collectively, Astron Technologies Ltd.,
Flextronics Industrial (Shenzhen) Limited, Flextronics Computer (Shekou)
Limited, Zhuhai Daomen Chao Yi Technology Co. Ltd., Zhuhai Daomen Chao Yi
Electronics Co. Ltd., Flex Asia (UK) Ltd., EnergiPilot AB, Proactive, Inc.,
Marathon Business Park LLC, any Unrestricted Subsidiary and any other
Subsidiary formed or acquired after the Closing Date and which is not
required to become a Guarantor pursuant to ss.9.14 hereof and which does
not elect to become a Guarantor pursuant to ss.7 hereof; provided, however,
to the extent any Person which is an Excluded Subsidiary hereunder
subsequently elects or is otherwise required to become a Guarantor
hereunder and complies with ss.6.2 hereof, such Person shall cease being an
Excluded Subsidiary hereunder on the date all the conditions of ss.7.4 have
been satisfied.
(c) the definition of "Total Funded Indebtedness" is hereby amended by
deleting the words "less the sum of (a) cash of the Company and its Subsidiaries
existing on the date of determination plus (b) Investments of the Company and
its Subsidiaries made pursuant to ss.10.3(a), (b) or (c) hereof" from such
definition;
(d) by inserting the following definitions in the appropriate alphabetical
order:
Pricing Leverage Ratio. As at any date of determination, the ratio of
(a) Total Pricing Funded Indebtedness of the Company and its Subsidiaries
outstanding on such date to (b) the EBITDA of the Company and its
Subsidiaries for the period of four (4) consecutive fiscal quarters
(treated as a single accounting period) most recently ended on such date.
Restricted Subsidiary. Any Subsidiary which is not an Unrestricted
Subsidiary. Neither the Company nor any Subsidiary shall have the right to
change the status of a Restricted Subsidiary to an Unrestricted Subsidiary,
but the Company or any Subsidiary shall have the right to change the status
of an Unrestricted Subsidiary to a Restricted Subsidiary, subject to
compliance with the provisions of ss.9.14 hereof.
<PAGE>
-3-
Total Pricing Funded Indebtedness. All Indebtedness of the Company and
its Subsidiaries for borrowed money (including without limitation, all
guarantees by such Person of Indebtedness of others for borrowed money),
purchase money Indebtedness and with respect to Capitalized Leases,
determined on a consolidated basis in accordance with generally accepted
accounting principles, less the sum of (a) cash of the Company and its
Subsidiaries existing on the date of determination plus (b) Investments of
the Company and its Subsidiaries made pursuant to ss.10.3(a), (b) or (c)
hereof.
Unrestricted Subsidiary. Collectively, (a) Neutronics Electronic
Industries Holdings AG, Althofen Electronics GmbH, HTR Technical Resources
Kft, Ecoplast Kft, Conexao Informatica Ltda, Flextronics do Brazil
Servicios Ltda and (b) any other Subsidiary of the Company, direct or
indirect, as to which (i) such Subsidiary conducts substantially all of its
business in countries other than the United States of America and is
organized under the laws of a jurisdiction other than the United States of
America and the States (or the District of Columbia) thereof; (ii) the
principal operations of such Subsidiary are not located in the United
States; (iii) the Company has provided the Agent with an officer's
certificate certifying that the Company has designated such Subsidiary as
an Unrestricted Subsidiary at or prior to the time such Subsidiary is
formed or acquired by the Company, as the case may be, and the Company has
provided written notice to the Agent in reasonable detail of such
designation within five (5) Business Days after designation thereof; (iv)
the Company owns not less than eighty percent (80%) of the capital stock of
such Subsidiary and not less than eighty percent (80%) of the Voting Stock
of such Subsidiary; (v) all of such Subsidiary's liabilities (other than
liabilities permitted to be guaranteed by the Company pursuant to ss.10.1
hereof) are non-recourse as to the Company or any Restricted Subsidiary;
and (vi) such Subsidiary does not own any capital stock of, or own or hold
any lien, security interest or other encumbrance on, any property of the
Company or any other Restricted Subsidiary, provided, however, no
Subsidiary shall be designated after the date hereof as an Unrestricted
Subsidiary if any Default or Event of Default would exist immediately after
giving effect to such designation.
ss.2. Amendment to Section 9 of the Credit Agreement. Section 9 of the
Credit Agreement is hereby as follows:
(a) Section 9.16 of the Credit Agreement is hereby amended by
deletingss.9.16 in its entirety and restating it as follows:
9.16. Payment of Astron Obligation. The Company shall make all
payments under the Astron Sales Agreement, the Services Agreement dated
February 2, 1996 between the Company, Astron Technologies Limited and
Stephen Rees (the "Rees Service Agreement") and the Supplemental Services
Agreement dated February 2, 1996 between Astron Group Limited and Stephen
Rees (the "Supplemental Rees Agreement") which are able to be paid pursuant
to such agreements in Astron Consideration Shares (as to the Astron Sales
Agreement) or ordinary shares of the Company (pursuant to the Rees Service
Agreement and the Supplemental Rees Agreement); provided, however, the
Company shall be permitted to make such payments in cash so long as no
Default or Event of Default has occurred and is continuing and the Company
can demonstrate to the satisfaction of the Agent that the Pricing Leverage
Ratio at the time of such cash payment is equal to or less than 2.50:1.00
both before and after giving effect to such cash payments.
<PAGE>
-4-
(b) Section 9.20 of the Credit Agreement is hereby amended by
deletingss.9.20 in its entirety and restating it as follows:
9.20. Unrestricted Subsidiaries. The Company shall at all times
designate persons constituting a majority of the directors (or members of
the governing body) of, and at all times have the power, directly or
indirectly, to direct the management and polices of each Unrestricted
Subsidiary.
ss.3. Amendment to Section 10 of the Credit Agreement. Section 10 of the
Credit Agreement is hereby amended as follows:
(a) Section 10.1(h) of the Credit Agreement is hereby amended by
deletingss.10.1(h) in its entirety and restating it as follows:
(h) obligations under (i) Capitalized Leases, (ii) Synthetic Leases
and (iii) other Indebtedness incurred in connection with the acquisition
after the date hereof of any real or person property or any business entity
by any Borrower or such Subsidiary; provided that the aggregate principal
amount of such Indebtedness under this ss.10.1(h)(iii) of the Borrowers and
the Restricted Subsidiaries and any Unrestricted Subsidiary which is
guaranteed by the Company or any Restricted Subsidiary plus the aggregate
principal amount of outstanding secured Indebtedness of any Unrestricted
Subsidiary which is guaranteed by the Company or any Restricted Subsidiary
and which is permitted to be incurred pursuant to ss.10.1(q) hereof shall
not exceed the aggregate amount of $50,000,000 at any one time;
(b) Section 10.1(o) of the Credit Agreement is hereby amended by (a)
deleting the words "other unsecured Indebtedness or Indebtedness secured solely
by a Temporary Lien" which appear in ss.10.1(o) and substituting in place
thereof the words "other unsecured Indebtedness of any Subsidiary or
Indebtedness of a Restricted Subsidiary secured solely by a Temporary Lien"; and
(b) deleting the word "and" which appears at the end of the text of ss.10.1(o);
(c) Section 10.1(p) of the Credit Agreement is hereby amended by deleting
the period which appears at the end of such section and substituting in place
thereof a semicolon and the word "and";
(d) Section 10.1 of the Credit Agreement is further amended by inserting
immediately after the text ofss.10.1(p) the following:
(q) secured Indebtedness of an Unrestricted Subsidiary which is not
otherwise permitted hereunder provided that (i) no Default or Event of
Default shall have occurred and be continuing or would exist as a result of
incurring such Indebtedness; (ii) the Company is in compliance with the
financial covenants set forth in ss.11 hereof on a pro forma basis both
before and immediately after giving effect to such Indebtedness and, to the
extent reasonably requested by the Agent, the Company has demonstrated such
compliance to the reasonable satisfaction of the Agent; (iii) to the extent
such Indebtedness is guaranteed by the Company or any Restricted
Subsidiary, the terms of such Indebtedness (including, without limitation,
the covenants, defaults, penalties and conditions pertaining to such
Indebtedness, but excluding amortization, collateral and maturity) taken as
a whole, are not materially more onerous to the Company and its
Subsidiaries than the terms contained herein taken as a whole; and (iv) to
the extent such Indebtedness is guaranteed by the Company or any Restricted
Subsidiary, the aggregate
<PAGE>
-5-
principal amount of such Indebtedness under this ss.10.1(q) of the
Borrowers and their Subsidiaries which is guaranteed by the Company or any
Restricted Subsidiary plus the aggregate principal amount of outstanding
purchase money Indebtedness of any Borrower or any Subsidiary which is
guaranteed by the Company or any Restricted Subsidiary and which is
permitted to be incurred pursuant to ss.10.1(h)(iii) hereof shall not
exceed the aggregate amount of $50,000,000 at any one time.
(e) Section 10.2(xiv) of the Credit Agreement is hereby amended by deleting
the word "and" which appears at the end of such section;
(f) Section 10.2(xv) of the Credit Agreement is hereby amended by (a)
deleting the words "liens on assets of a Subsidiary" and substituting in place
thereof the words "liens on assets of a Restricted Subsidiary"; and (b) deleting
the period which appears at the end of ss.10.2(xv) and substituting in place
thereof a semicolon and the word "and";
(g) Section 10.2 is further amended by inserting immediately after the end
of ss.10.2(xv) the following:
(xvi) liens on assets of any Unrestricted Subsidiary to secure
Indebtedness permitted to be incurred pursuant to ss.10.1(q) hereof.
(h) Section 10.3 is hereby amended by deleting ss.10.3(l) in its entirety
and restating such ss.10.3(l) as follows:
(l) Investments with respect to Indebtedness permitted by ss.10.1(g)
and Investments (other than Investments in an Unrestricted Subsidiary) made
pursuant to the Investment Policy Guidelines;
ss.4. Amendment to Section 11 of the Credit Agreement. Section 11 of the
Credit Agreement is hereby amended as follows:
(a) Section 11.1 of the Credit Agreement is hereby amended by deleting the
ratio "3.50:1.00" which appears in ss.11.1 and substituting in place thereof the
ratio "4.50:1.00"; and
(b) Section 11.3 of the Credit Agreement is hereby amended by (i) deleting
the words "95% of Consolidated Tangible Net Worth at September 30, 1997" and
substituting in place thereof the number "$175,000,000"; and (b) deleting the
date "September 30, 1997" from each place in which it appears in ss.11.3 and
substituting in place thereof the date "March 31, 1998".
ss.5. Amendment to Credit Agreement. Notwithstanding anything to the
contrary contained in the Credit Agreement, from and after the date hereof the
Borrowers shall not be permitted to request any Revolving Credit Loans to be
denominated in an Optional Currency, shall only be permitted to have Revolving
Credit Loans denominated in Dollars and, to the extent there are any Revolving
Credit Loans denominated in any Optional Currency, shall be required to repay
such Revolving Credit Loans on the date hereof.
ss.6. Amendment to Schedules 10.1 and 10.2 of the Credit Agreement.
Schedules 10.1 and 10.2 of the Credit Agreement are each hereby amended as
follows:
<PAGE>
-6-
(a) Schedule 10.1 of the Credit Agreement is hereby amended by deleting
from Schedule 10.1 all Indebtedness incurred by Neutronics, and substituting in
place thereof the Indebtedness set forth on the annex to Schedule 10.1 attached
hereto; and
(b) Schedule 10.2 of the Credit Agreement is hereby amended by deleting
from Schedule 10.2 all liens on assets of Neutronics securing Indebtedness of
Neutronics and substituting in place thereof the liens set forth on the annex to
Schedule 10.2 attached hereto.
ss.7. Conditions to Effectiveness. This Second Amendment shall not become
effective until the Agent receives a counterpart of this Second Amendment,
executed by the Borrower, the Guarantors and the Majority Banks.
ss.8. Representations and Warranties. The Borrower hereby repeats, on and
as of the date hereof, each of the representations and warranties made by it in
ss.8 of the Credit Agreement, and such representations and warranties remain
true as of the date hereof (except to the extent of changes resulting from
transactions contemplated or permitted by the Credit Agreement and the other
Loan Documents and changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse, and to the extent that
such representations and warranties relate expressly to an earlier date),
provided, that all references therein to the Credit Agreement shall refer to
such Credit Agreement as amended hereby. In addition, the Borrower hereby
represents and warrants that the execution and delivery by the Borrower of this
Second Amendment and the performance by the Borrower of all of its agreements
and obligations under the Credit Agreement as amended hereby are within the
corporate authority of each the Borrower and has been duly authorized by all
necessary corporate action on the part of the Borrower.
ss.9. Ratification, Etc. Except as expressly amended hereby, the Credit
Agreement and all documents, instruments and agreements related thereto,
including, but not limited to the Security Documents, are hereby ratified and
confirmed in all respects and shall continue in full force and effect. The
Credit Agreement and this Second Amendment shall be read and construed as a
single agreement. All references in the Credit Agreement or any related
agreement or instrument to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended hereby.
ss.10. No Waiver. Nothing contained herein shall constitute a waiver of,
impair or otherwise affect any Obligations, any other obligation of the Borrower
or any rights of the Agent or the Banks consequent thereon.
ss.11. Counterparts. This Second Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
ss.12. Governing Law. THIS SECOND AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REFERENCE TO CONFLICT OF LAWS).
<PAGE>
-7-
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
as a document under seal as of the date first above written.
FLEXTRONICS INTERNATIONAL LTD.
By:__________________________________
Title:
BANKBOSTON, N.A.
By:__________________________________
Title:
ABN AMRO BANK N.V.
By: _________________________________
Name:
Title:
THE BANK OF NOVA SCOTIA
By: _________________________________
Name:
Title:
BANQUE NATIONALE DE PARIS, SAN
FRANCISCO BRANCH
By: _________________________________
Name:
Vice President
PARIBAS
By: _________________________________
Name:
Title:
<PAGE>
-8-
COMERICA BANK
By: _________________________________
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By: _________________________________
Name:
Title:
SUMITOMO BANK OF CALIFORNIA
By: _________________________________
Name:
Title:
<PAGE>
-9-
RATIFICATION OF GUARANTY
Each of the undersigned guarantors hereby acknowledges and consents to the
foregoing Second Amendment as of June 26, 1998, and agrees that each of the
Guarantees dated as of January 14, 1998 from each of the undersigned Guarantors
remain in full force and effect, and each of the Guarantors confirms and
ratifies all of its obligations thereunder.
FLEXTRONICS INTERNATIONAL USA, INC.
By:__________________________________
Title:
FLEXTRONICS INTERNATIONAL (UK) LTD.
By:__________________________________
Title:
FLEXTRONICS MANUFACTURING (HK) LTD.
By:__________________________________
Title:
FLEXTRONICS SINGAPORE PTE. LTD.
By:__________________________________
Title:
FLEXTRONICS HOLDING (UK) LTD.
By:__________________________________
Title:
<PAGE>
-10-
FLEXTRONICS MALAYSIA SDN BHD
By:__________________________________
Title:
FLEXTRONICS INTERNATIONAL
MARKETING (L) LTD.
By:__________________________________
Title:
FLEXTRONICS HOLDINGS AB
By:__________________________________
Title:
FLEXTRONICS INTERNATIONAL
SWEDEN AB
By:__________________________________
Title:
ASTRON GROUP LIMITED
By:__________________________________
Title:
DTM PRODUCTS CORPORATION
By:__________________________________
Title:
<PAGE>
ANNEX TO SCHEDULE 10.1
ANNEX TO SCHEDULE 10.2
- --------------------------------------------------------------------------------
THIRD AMENDMENT
TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
- --------------------------------------------------------------------------------
Third Amendment dated as of September 29, 1998 to Amended and Restated
Revolving Credit Agreement (the "Third Amendment"), by and among FLEXTRONICS
INTERNATIONAL USA, INC., a California corporation (the "Borrower"), BANKBOSTON,
N.A. (formerly known as The First National Bank of Boston) and the other lending
institutions listed on Schedule 1 to the Credit Agreement (as hereinafter
defined) (collectively, the "Existing Banks"), Bank of America National Trust
and Savings Association (the "New Bank" and, together with the Existing Banks,
the "Banks") and BankBoston, N.A. in its capacity as agent for the Banks (the
"Agent"), amending certain provisions of the Amended and Restated Revolving
Credit Agreement dated as of January 14, 1998 (as amended and in effect from
time to time, the "Credit Agreement") by and among the Borrower, the Existing
Banks and BankBoston, N.A. as agent for the Banks (the "Agent"). Terms not
otherwise defined herein which are defined in the Credit Agreement shall have
the same respective meanings herein as therein.
WHEREAS, the New Bank wishes to become a party to the Credit Agreement,
and certain of the Existing Banks wish to assign certain portions of their
Revolving Credit Loans, Letter of Credit Participations and Commitments under
the Credit Agreement to the New Bank and certain Existing Banks; and
WHEREAS, the Borrower has requested, and the Banks have agreed upon the
terms and conditions described herein, that the aggregate Commitments of the
Banks to extend credit under the Credit Agreement be increased to
$57,142,857.13;
WHEREAS, the Borrower and the Banks have agreed to modify certain other
terms and conditions of the Credit Agreement as specifically set forth in this
Third Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ss.1. Amendment to Section 1 of the Credit Agreement. Section 1.2(d) of
the Credit Agreement is hereby amended by deleting the text of ss.1.2(d) in its
entirety and substituting in place thereof the words "A reference to any Person
includes its permitted successors and assigns, with the provisions of this
Credit Agreement be binding upon and inuring to the benefit of such Person and
its permitted successors and assigns."
ss.2. Amendment to Section 5 of the Credit Agreement. Section
5.1.1(b)(ii) of the Credit Agreement is hereby amended by inserting immediately
after the words "all Unpaid Reimbursement Obligations" the words "plus all
Bankers' Acceptances outstanding".
ss.3. Amendment to Section 8 of the Credit Agreement. Section 8 of the
Credit Agreement is hereby by inserting the following immediately after the end
of the text of ss.8.23:
<PAGE>
-2-
8.25. Year 2000 Compliance. The Borrower and its Subsidiaries have
reviewed the areas within their businesses and operations which could be
adversely affected by, and have developed or are developing a program to
address on a timely basis, the "Year 2000" (i.e. the risk that computer
applications used by the Borrower or any of its Subsidiaries may be
unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date after December 31, 1999).
Based upon such review, the Borrower reasonably believes that the "Year
2000" will not have any materially adverse effect on the business or
financial condition of the Borrower or any of its Subsidiaries.
ss.4. Amendment to Section 12 of the Credit Agreement. Section ss.12.2 of
the Credit Agreement is hereby amended by inserting immediately after the words
"such Letter of Credit" which appear in ss.12.2 the words "and to accept and/or
purchase any Bankers' Acceptances".
ss.5. Amendment to Schedule 1 of the Credit Agreement. Schedule 1 of the
Credit Agreement is hereby amended by deleting such schedule in its entirety and
substituting in place thereof the Schedule 1 attached hereto.
ss.6. Assignment and Acceptance.
(a) For the purposes of the assignment contemplated herein, the
provisions of ss.19.1 of the Credit Agreement are hereby waived and the parties
hereto hereby consent and agree to such assignment.
(b) Each of Comerica Bank and The Sumitomo Bank of California
(collectively, the "Assignors") hereby sells and assigns to each of BankBoston,
N.A., Bank of America National Trust and Savings Association, and ABN Amro Bank
N.V. (collectively, the "Assignees"), and each Assignee hereby purchases and
assumes from each Assignor, a certain percentage of each such Assignor's rights
and obligations under the Credit Agreement as of the effective date hereof,
including, without limitation, such percentage interest in each such Assignor's
Commitment as in effect on the effective date, and the outstanding amount of the
Revolving Credit Loans, Letter of Credit Participation and Bankers' Acceptance
Participation owing to each Assignor on the effective date and the Revolving
Credit Note held by each Assignor (such interest being hereinafter referred to
as the "Assigned Portion") such that, after giving effect to the assignments
contemplated hereby, the respective Commitments, Commitment Percentages of each
Assignor shall be zero, and the respective Commitments and Commitment
Percentages of each Assignee (after giving effect to the increase in the Total
Commitment contemplated by this Third Amendment) shall be as set forth on
Schedule 1 attached hereto, and each Assignee shall have that percentage
interest in all Revolving Credit Loans, Letter of Credit Participations and
Bankers Acceptance Participations. Notwithstanding any term or provision of
ss.19 of the Credit Agreement to the contrary, the execution and delivery hereof
by each Assignor, each Assignee, the Agent and the Borrower shall constitute an
Assignment and Acceptance delivered in accordance with the Credit Agreement and
shall be effective in respect of the assignment contemplated hereby.
(c) each Assignor (i) represents and warrants (as to itself only and not
as to the other Assignor) that as of the date hereof, its Commitment and
Commitment Percentage is sufficient to give effect to this Assignment and
Acceptance; (ii) makes no representation or warranty, express or implied, and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with the Credit Agreement or any of the
other Loan Documents or the execution, legality, validity, enforceability,
genuineness, sufficiency or value of the Credit Agreement, any of the other Loan
Documents or any other instrument or document furnished pursuant thereto or the
attachment, perfection or priority of any security interest or mortgage, other
than that it is the legal and beneficial owner of the
<PAGE>
-3-
interest being assigned by it hereunder free and clear of any claim or
encumbrance; (iii) makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or any of
its Subsidiaries or any other Person primarily or secondarily liable in respect
of any of the Obligations, or the performance or observance by the Borrower or
any of its Subsidiaries or any other Person primarily or secondarily liable in
respect of any of the Obligations of any of its obligations under the Credit
Agreement or any of the other Loan Documents or any other instrument or document
delivered or executed pursuant thereto; and (iv) requests that in connection
with such assignment as set forth herein the Borrower exchange the Revolving
Credit Notes of each Assignor for new Revolving Credit Notes, each dated as of
the effective date hereof payable to the order of each Assignee in the principal
amount of the Commitment set forth opposite each Assignee's name on Schedule 1
to the Credit Agreement as amended hereby and each such new note shall be deemed
to be a "Revolving Credit Note" under the Credit Agreement.
(d) each Assignee (i) represents and warrants (as to itself only and not
as to any other Assignee) that it has received a copy of the Credit Agreement
and the other Loan Documents, together with copies of the financial statements
referred to in ss.9 of the Credit Agreement and such other documents and
information as it deems appropriate to make its own credit analysis and decision
to enter into this agreement, that it is an Eligible Assignee under the Credit
Agreement and that all acts, conditions and things required to be done and
performed have occurred prior to the execution, delivery and performance of this
assignment, and to render the same the legal, valid and binding obligation of
each such Assignee, enforceable against it in accordance with its terms, have
been done and performed and have occurred in due and strict compliance with all
applicable laws; (ii) agrees that it will, independently and without reliance
upon any Assignor, the Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement; and
(iii) appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under the Credit Agreement and the other Loan
Documents as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto, and agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Agreement and the other Loan Documents are required to be performed by it
as a Bank.
(e) Upon the effectiveness of the assignment contemplated hereby, each
Assignor shall return to the Borrower its Revolving Credit Note, marked
"Cancelled".
ss.7. Addition of New Bank.
(a) Each of the Agent and the Borrower consent to the addition of the New
Bank as a Bank hereunder such that, after giving effect thereto and as of the
effective date hereof, the New Bank shall be a party to the Credit Agreement and
shall have the rights and obligations of a Bank thereunder.
(b) The New Bank (a) represents and warrants that (i) it is duly and
legally authorized to enter into this Amendment, (ii) the execution, delivery
and performance of this Amendment do not conflict with any provision of law or
of the charter or by-laws of the New Bank, or of any agreement binding on the
New Bank, (iii) all acts, conditions and things required to be done and
performed and to have occurred prior to the execution, delivery and performance
of this Third Amendment, and to render the same the legal, valid and binding
obligation of the New Bank, enforceable against it in accordance with its terms,
have been done and performed and have occurred in due and strict compliance with
all applicable laws; (b) confirms that it has received a copy of the Credit
Agreement, together with copies of the most recent financial statements
delivered pursuant to ss.9 thereof and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into this
<PAGE>
-4-
Amendment; (c) agrees that it will, independently and without reliance upon the
Agent or any other Bank and based on such documents and information as it shall
deem appropriate at the time, continue to make its own credit decisions in
taking or not taking action under the Credit Agreement; (d) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under the Credit Agreement and the other Loan Documents as are
delegated to the Agent by the terms thereof, together with such powers as are
reasonably incidental thereto; and (e) agrees that it will perform in accordance
with their terms all the obligations which by the terms of the Credit Agreement
are required to be performed by it as a Bank.
ss.8. Conditions to Effectiveness. This Third Amendment shall not become
effective until the Agent receives a counterpart of this Third Amendment,
executed by the Borrower, the Guarantors and the Banks, as well as new Revolving
Credit Notes payable to each Assignee and the New Bank in the amount set forth
opposite such Bank's name on Schedule 1 hereto.
ss.9. Representations and Warranties. The Borrower hereby repeats, on and
as of the date hereof, each of the representations and warranties made by it in
ss.8 of the Credit Agreement, and such representations and warranties remain
true as of the date hereof (except to the extent of changes resulting from
transactions contemplated or permitted by the Credit Agreement and the other
Loan Documents and changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse, and to the extent that
such representations and warranties relate expressly to an earlier date),
provided, that all references therein to the Credit Agreement shall refer to
such Credit Agreement as amended hereby. In addition, the Borrower hereby
represents and warrants that the execution and delivery by the Borrower of this
Third Amendment and the performance by the Borrower of all of its agreements and
obligations under the Credit Agreement as amended hereby are within the
corporate authority of each the Borrower and has been duly authorized by all
necessary corporate action on the part of the Borrower.
ss.10. Ratification, Etc. Except as expressly amended hereby, the Credit
Agreement and all documents, instruments and agreements related thereto,
including, but not limited to the Security Documents, are hereby ratified and
confirmed in all respects and shall continue in full force and effect. The
Credit Agreement and this Third Amendment shall be read and construed as a
single agreement. All references in the Credit Agreement or any related
agreement or instrument to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended hereby.
ss.11. No Waiver. Nothing contained herein shall constitute a waiver of,
impair or otherwise affect any Obligations, any other obligation of the Borrower
or any rights of the Agent or the Banks consequent thereon.
ss.12. Counterparts. This Third Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
ss.13. Governing Law. THIS THIRD AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REFERENCE TO CONFLICT OF LAWS).
<PAGE>
-5-
IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment
as a document under seal as of the date first above written.
FLEXTRONICS INTERNATIONAL USA, INC.
By:____________________________________
Title:
BANKBOSTON, N.A.
By:____________________________________
Title:
ABN AMRO BANK N.V.
By: ___________________________________
Name:
Title:
THE BANK OF NOVA SCOTIA
By: ___________________________________
Name:
Title:
BANQUE NATIONALE DE PARIS, SAN
FRANCISCO BRANCH
By: ___________________________________
Name:
Vice President
PARIBAS
By: ___________________________________
Name:
Title:
<PAGE>
-6-
COMERICA BANK
By: ___________________________________
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By: ___________________________________
Name:
Title:
SUMITOMO BANK OF CALIFORNIA
By: ___________________________________
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: ___________________________________
Name:
Title:
<PAGE>
-7-
RATIFICATION OF GUARANTY
Each of the undersigned guarantors hereby acknowledges and consents to
the foregoing Third Amendment as of September 29, 1998, and agrees that each of
the Guarantees dated as of January 14, 1998 from each of the undersigned
Guarantors remain in full force and effect, and each of the Guarantors confirms
and ratifies all of its obligations thereunder.
FLEXTRONICS INTERNATIONAL LTD.
By:______________________________________
Title:
FLEXTRONICS INTERNATIONAL (UK) LTD.
By:______________________________________
Title:
FLEXTRONICS MANUFACTURING (HK) LTD.
By:______________________________________
Title:
FLEXTRONICS SINGAPORE PTE. LTD.
By:______________________________________
Title:
FLEXTRONICS HOLDING (UK) LTD.
By:______________________________________
Title:
<PAGE>
-8-
FLEXTRONICS MALAYSIA SDN BHD
By:______________________________________
Title:
FLEXTRONICS INTERNATIONAL
MARKETING (L) LTD.
By:______________________________________
Title:
FLEXTRONICS HOLDINGS AB
By:______________________________________
Title:
FLEXTRONICS INTERNATIONAL
SWEDEN AB
By:______________________________________
Title:
ASTRON GROUP LIMITED
By:______________________________________
Title:
DTM PRODUCTS CORPORATION
By:______________________________________
Title:
<PAGE>
SCHEDULE 1
----------
Banks/Commitments
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Commitment
Revolving Percentage of Revolving Credit Loans,
Credit Loan Bankers' Acceptances and Letters
Banks Commitment of Credit
===============================================================================================================
<S> <C> <C>
BankBoston, N.A. $12,380,952.38 21.6666667%
Domestic Lending Office:
100 Federal Street, 01-08-06
Boston, Massachusetts 02110
Attn: High Technology Division
Eurodollar Lending Office:
Same as above
===============================================================================================================
ABN Amro Bank N.V. $9,761,904.76 17.0833333%
Domestic Lending Office:
101 California Street, Suite 4550
San Francisco, CA 94111
Eurodollar Lending Office:
Same as above
===============================================================================================================
Bank of Nova Scotia $9,523,809.52 16.6666667%
Domestic Lending Office:
580 California Street, 21st Floor
San Francisco, CA 94104
Eurodollar Lending Office:
Same as above
===============================================================================================================
Bank of America National Trust and $9,523,809.52 16.6666667%
Savings Association
Domestic Lending Office:
555 California Street
San Francisco, CA 94104
Eurodollar Lending Office:
Same as above
===============================================================================================================
Banque Nationale de Paris $7,142,857.13 12.5000000%
Domestic Lending Office:
180 Montgomery Street, 3rd Floor
San Francisco, CA 94104
Eurodollar Lending Office:
Same as above
===============================================================================================================
</TABLE>
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Paribas $5,952,380.95 10.4166667%
Domestic Lending Office:
101 California Street, Suite 3150
San Francisco, CA 94104
Eurodollar Lending Office:
Same as above
===============================================================================================================
Industrial Bank of Japan $2,857,142,86 5.0000000%
Domestic Lending Office:
555 California Street, Suite 3110
San Francisco, CA 94104
Eurodollar Lending Office:
Same as above
===============================================================================================================
Totals: $57,142,857.13 100%
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
THIRD AMENDMENT
TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
- --------------------------------------------------------------------------------
Third Amendment dated as of September 29, 1998 to Amended and Restated
Revolving Credit Agreement (the "Third Amendment"), by and among FLEXTRONICS
INTERNATIONAL LTD., a company incorporated in Singapore (the "Borrower"),
BANKBOSTON, N.A. (formerly known as The First National Bank of Boston) and the
other lending institutions listed on Schedule 1 to the Credit Agreement (as
hereinafter defined) (collectively, the "Existing Banks"), Bank of America
National Trust and Savings Association (the "New Bank" and, together with the
Existing Banks, the "Banks") and BankBoston, N.A. in its capacity as agent for
the Banks (the "Agent"), amending certain provisions of the Amended and Restated
Revolving Credit Agreement dated as of January 14, 1998 (as amended and in
effect from time to time, the "Credit Agreement") by and among the Borrower, the
Existing Banks and BankBoston, N.A. as agent for the Banks (the "Agent"). Terms
not otherwise defined herein which are defined in the Credit Agreement shall
have the same respective meanings herein as therein.
WHEREAS, the New Bank wishes to become a party to the Credit Agreement, and
certain of the Existing Banks wish to assign certain portions of their Revolving
Credit Loans, Letter of Credit Participations and Commitments under the Credit
Agreement to the New Bank and certain Existing Banks; and
WHEREAS, the Borrower has requested, and the Banks have agreed upon the
terms and conditions described herein, that the aggregate Commitments of the
Banks to extend credit under the Credit Agreement be increased to $62,857,142.87
WHEREAS, the Borrower and the Banks have agreed to modify certain other
terms and conditions of the Credit Agreement as specifically set forth in this
Third Amendment;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ss.1. Amendment to Section 1 of the Credit Agreement. Section 1.2(d) of the
Credit Agreement is hereby amended by deleting the text of ss.1.2(d) in its
entirety and substituting in place thereof the words "A reference to any Person
includes its permitted successors and assigns, with the provisions of this
Credit Agreement be binding upon and inuring to the benefit of such Person and
its permitted successors and assigns."
ss.2. Amendment to Section 5 of the Credit Agreement. Section 5.1.1(b)(ii)
of the Credit Agreement is hereby amended by inserting immediately after the
words "all Unpaid Reimbursement Obligations" the words "plus all Bankers'
Acceptances outstanding".
ss.3. Amendment to Section 8 of the Credit Agreement. Section 8 of the
Credit Agreement is hereby amended by inserting the following immediately after
the end of the text of ss.8.28:
<PAGE>
-2-
8.29. Year 2000 Compliance. The Company and its Subsidiaries have
reviewed the areas within their businesses and operations which could be
adversely affected by, and have developed or are developing a program to
address on a timely basis, the "Year 2000" (i.e. the risk that computer
applications used by the Company or any of its Subsidiaries may be unable
to recognize and perform properly date-sensitive functions involving
certain dates prior to and any date after December 31, 1999). Based upon
such review, the Borrower reasonably believes that the "Year 2000" will not
have any materially adverse effect on the business or financial condition
of the Company or any of its Subsidiaries.
ss.4. Amendment to Schedule 1 of the Credit Agreement. Schedule 1 of the
Credit Agreement is hereby amended by deleting such schedule in its entirety and
substituting in place thereof the Schedule 1 attached hereto.
ss.5. Assignment and Acceptance.
(a) For the purposes of the assignment contemplated herein, the provisions
of ss.20.1 of the Credit Agreement are hereby waived and the parties hereto
hereby consent and agree to such assignment.
(b) Each of Comerica Bank and The Sumitomo Bank of California
(collectively, the "Assignors") hereby sells and assigns to each of BankBoston,
N.A., Bank of America National Trust and Savings Association and ABN Amro Bank
N.V. (collectively, the "Assignees"), and each Assignee hereby purchases and
assumes from each Assignor, a certain percentage of each such Assignor's rights
and obligations under the Credit Agreement as of the effective date hereof,
including, without limitation, such percentage interest in each such Assignor's
Commitment as in effect on the effective date, and the outstanding amount of the
Revolving Credit Loans, Letter of Credit Participation and Bankers' Acceptance
Participation owing to each Assignor on the effective date and the Revolving
Credit Note held by each Assignor (such interest being hereinafter referred to
as the "Assigned Portion") such that, after giving effect to the assignments
contemplated hereby, the respective Commitments, Commitment Percentages of each
Assignor shall be zero, and the respective Commitments and Commitment
Percentages of each Assignee (after giving effect to the increase in the Total
Commitment contemplated by this Third Amendment) shall be as set forth on
Schedule 1 attached hereto, and each Assignee shall have that percentage
interest in all Revolving Credit Loans, Letter of Credit Participations and
Bankers Acceptance Participations. Notwithstanding any term or provision of
ss.20 of the Credit Agreement to the contrary, the execution and delivery hereof
by each Assignor, each Assignee, the Agent and the Borrower shall constitute an
Assignment and Acceptance delivered in accordance with the Credit Agreement and
shall be effective in respect of the assignment contemplated hereby.
(c) each Assignor (i) represents and warrants (as to itself only and not as
to the other Assignor) that as of the date hereof, its Commitment and Commitment
Percentage is sufficient to give effect to this Assignment and Acceptance; (ii)
makes no representation or warranty, express or implied, and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Credit Agreement or any of the other Loan
Documents or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of the Credit Agreement, any of the other Loan Documents or
any other instrument or document furnished pursuant thereto or the attachment,
perfection or priority of any security interest or mortgage, other than that it
is the legal and beneficial owner of the interest being assigned by it hereunder
free and clear of any claim or encumbrance; (iii) makes no representation or
warranty and assumes no responsibility with respect to the financial condition
of the Borrower or any of its Subsidiaries or any other Person primarily or
secondarily liable in respect of any of the Obligations, or the performance or
observance by the Borrower or any of its Subsidiaries or any
<PAGE>
-3-
other Person primarily or secondarily liable in respect of any of the
Obligations of any of its obligations under the Credit Agreement or any of the
other Loan Documents or any other instrument or document delivered or executed
pursuant thereto; and (iv) requests that in connection with such assignment as
set forth herein the Borrower exchange the Revolving Credit Notes of each
Assignor for new Revolving Credit Notes, each dated as of the effective date
hereof payable to the order of each Assignee in the principal amount of the
Commitment set forth opposite each Assignee's name on Schedule 1 to the Credit
Agreement as amended hereby and each such new note shall be deemed to be a
"Revolving Credit Note" under the Credit Agreement.
(d) each Assignee (i) represents and warrants (as to itself only and not as
to any other Assignee) that it has received a copy of the Credit Agreement and
the other Loan Documents, together with copies of the financial statements
referred to in ss.9.4 of the Credit Agreement and such other documents and
information as it deems appropriate to make its own credit analysis and decision
to enter into this agreement, that it is an Eligible Assignee under the Credit
Agreement and that all acts, conditions and things required to be done and
performed have occurred prior to the execution, delivery and performance of this
assignment, and to render the same the legal, valid and binding obligation of
each such Assignee, enforceable against it in accordance with its terms, have
been done and performed and have occurred in due and strict compliance with all
applicable laws; (ii) agrees that it will, independently and without reliance
upon any Assignor, the Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement; and
(iii) appoints and authorizes the Agent to take such action as agent on its
behalf and to exercise such powers under the Credit Agreement and the other Loan
Documents as are delegated to the Agent by the terms thereof, together with such
powers as are reasonably incidental thereto, and agrees that it will perform in
accordance with their terms all of the obligations which by the terms of the
Credit Agreement and the other Loan Documents are required to be performed by it
as a Bank.
(e) Upon the effectiveness of the assignment contemplated hereby, each
Assignor shall return to the Borrower its Revolving Credit Note, marked
"Cancelled".
ss.6. Addition of New Bank.
(a) Each of the Agent and the Borrower consent to the addition of the New
Bank as a Bank hereunder such that, after giving effect thereto and as of the
effective date hereof, the New Bank shall be a party to the Credit Agreement and
shall have the rights and obligations of a Bank thereunder.
(b) The New Bank (a) represents and warrants that (i) it is duly and
legally authorized to enter into this Amendment, (ii) the execution, delivery
and performance of this Amendment do not conflict with any provision of law or
of the charter or by-laws of the New Bank, or of any agreement binding on the
New Bank, (iii) all acts, conditions and things required to be done and
performed and to have occurred prior to the execution, delivery and performance
of this Third Amendment, and to render the same the legal, valid and binding
obligation of the New Bank, enforceable against it in accordance with its terms,
have been done and performed and have occurred in due and strict compliance with
all applicable laws; (b) confirms that it has received a copy of the Credit
Agreement, together with copies of the most recent financial statements
delivered pursuant to ss.9.4 thereof and such other documents and information as
it has deemed appropriate to make its own credit analysis and decision to enter
into this Amendment; (c) agrees that it will, independently and without reliance
upon the Agent or any other Bank and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit decisions
in taking or not taking action under the Credit Agreement; (d) appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers under the
<PAGE>
-4-
Credit Agreement and the other Loan Documents as are delegated to the Agent by
the terms thereof, together with such powers as are reasonably incidental
thereto; and (e) agrees that it will perform in accordance with their terms all
the obligations which by the terms of the Credit Agreement are required to be
performed by it as a Bank.
ss.7. Conditions to Effectiveness. This Third Amendment shall not become
effective until the Agent receives a counterpart of this Third Amendment,
executed by the Borrower, the Guarantors and the Banks, as well as new Revolving
Credit Notes payable to each Assignee and the New Bank in the amount set forth
opposite such Bank's name on Schedule 1 hereto.
ss.8. Representations and Warranties. The Borrower hereby repeats, on and
as of the date hereof, each of the representations and warranties made by it in
ss.8 of the Credit Agreement, and such representations and warranties remain
true as of the date hereof (except to the extent of changes resulting from
transactions contemplated or permitted by the Credit Agreement and the other
Loan Documents and changes occurring in the ordinary course of business that
singly or in the aggregate are not materially adverse, and to the extent that
such representations and warranties relate expressly to an earlier date),
provided, that all references therein to the Credit Agreement shall refer to
such Credit Agreement as amended hereby. In addition, the Borrower hereby
represents and warrants that the execution and delivery by the Borrower of this
Third Amendment and the performance by the Borrower of all of its agreements and
obligations under the Credit Agreement as amended hereby are within the
corporate authority of each the Borrower and has been duly authorized by all
necessary corporate action on the part of the Borrower.
ss.9. Ratification, Etc. Except as expressly amended hereby, the Credit
Agreement and all documents, instruments and agreements related thereto,
including, but not limited to the Security Documents, are hereby ratified and
confirmed in all respects and shall continue in full force and effect. The
Credit Agreement and this Third Amendment shall be read and construed as a
single agreement. All references in the Credit Agreement or any related
agreement or instrument to the Credit Agreement shall hereafter refer to the
Credit Agreement as amended hereby.
ss.10. No Waiver. Nothing contained herein shall constitute a waiver of,
impair or otherwise affect any Obligations, any other obligation of the Borrower
or any rights of the Agent or the Banks consequent thereon.
ss.11. Counterparts. This Third Amendment may be executed in one or more
counterparts, each of which shall be deemed an original but which together shall
constitute one and the same instrument.
ss.12. Governing Law. THIS THIRD AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REFERENCE TO CONFLICT OF LAWS).
<PAGE>
-5-
IN WITNESS WHEREOF, the parties hereto have executed this Third Amendment
as a document under seal as of the date first above written.
FLEXTRONICS INTERNATIONAL LTD.
By:_____________________________________________
Title:
BANKBOSTON, N.A.
By:_____________________________________________
Title:
ABN AMRO BANK N.V.
By: ____________________________________________
Name:
Title:
THE BANK OF NOVA SCOTIA
By: ____________________________________________
Name:
Title:
BANQUE NATIONALE DE PARIS, SAN
FRANCISCO BRANCH
By: ____________________________________________
Name:
Vice President
PARIBAS
By: ____________________________________________
Name:
Title:
<PAGE>
-6-
COMERICA BANK
By: ____________________________________________
Name:
Title:
THE INDUSTRIAL BANK OF JAPAN, LIMITED
By: ____________________________________________
Name:
Title:
SUMITOMO BANK OF CALIFORNIA
By: ____________________________________________
Name:
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By: ____________________________________________
Name:
Title:
<PAGE>
RATIFICATION OF GUARANTY
Each of the undersigned guarantors hereby acknowledges and consents to the
foregoing Third Amendment as of September 29, 1998, and agrees that each of the
Guarantees dated as of January 14, 1998 from each of the undersigned Guarantors
remain in full force and effect, and each of the Guarantors confirms and
ratifies all of its obligations thereunder.
FLEXTRONICS INTERNATIONAL USA, INC.
By:__________________________________
Title:
FLEXTRONICS INTERNATIONAL (UK) LTD.
By:____________________________________
Title:
FLEXTRONICS MANUFACTURING (HK) LTD.
By:____________________________________
Title:
FLEXTRONICS SINGAPORE PTE. LTD.
By:__________________________________
Title:
FLEXTRONICS HOLDING (UK) LTD.
By:____________________________________
Title:
<PAGE>
-8-
FLEXTRONICS MALAYSIA SDN BHD
By:____________________________________
Title:
FLEXTRONICS INTERNATIONAL
MARKETING (L) LTD.
By:____________________________________
Title:
FLEXTRONICS HOLDINGS AB
By:____________________________________
Title:
FLEXTRONICS INTERNATIONAL
SWEDEN AB
By:____________________________________
Title:
ASTRON GROUP LIMITED
By:____________________________________
Title:
DTM PRODUCTS CORPORATION
By:____________________________________
Title:
<PAGE>
SCHEDULE 1
Banks/Commitments
<TABLE>
<CAPTION>
======================================================================================================================
Commitment
Revolving Percentage of Revolving Credit Loans,
Credit Loan Bankers' Acceptances and Letters
Banks Commitment of Credit
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<S> <C> <C>
BankBoston, N.A. $13,619,047.62 21.6666667%
Domestic Lending Office:
100 Federal Street, 01-08-06
Boston, Massachusetts 02110
Attn: High Technology Division
Eurodollar Lending Office:
Same as above
======================================================================================================================
ABN Amro Bank N.V. $10,738,095.24 17.0833333%
Domestic Lending Office:
101 California Street, Suite 4550
San Francisco, CA 94111
Eurodollar Lending Office:
Same as above
======================================================================================================================
Bank of Nova Scotia $10,476,190.48 16.6666667%
Domestic Lending Office:
580 California Street, 21st Floor
San Francisco, CA 94104
Eurodollar Lending Office:
Same as above
======================================================================================================================
Bank of America National Trust and $10,476,190.48 16.6666667%
Savings Association
Domestic Lending Office:
555 California Street
San Francisco, CA 94104
Eurodollar Lending Office:
Same as above
======================================================================================================================
Banque Nationale de Paris $7,857,142.87 12.5000000%
Domestic Lending Office:
180 Montgomery Street, 3rd Floor
San Francisco, CA 94104
Eurodollar Lending Office:
Same as above
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</TABLE>
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<TABLE>
<CAPTION>
======================================================================================================================
Commitment
Revolving Percentage of Revolving Credit Loans,
Credit Loan Bankers' Acceptances and Letters
Banks Commitment of Credit
======================================================================================================================
<S> <C> <C>
Paribas $6,547,619.05 10.4166667%
Domestic Lending Office:
101 California Street, Suite 3150
San Francisco, CA 94104
Eurodollar Lending Office:
Same as above
======================================================================================================================
Industrial Bank of Japan $3,142,857.14 5.0000000%
Domestic Lending Office:
555 California Street, Suite 3110
San Francisco, CA 94104
Eurodollar Lending Office:
Same as above
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Totals: $62,857,142.87 100%
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</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1998 (UNAUDITED) AND THE STATEMENTS OF INCOME FOR THE
NINE MONTHS ENDED DECEMBER 31, 1998 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY
BY REFERNCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 201,121
<SECURITIES> 0
<RECEIVABLES> 186,463
<ALLOWANCES> 6,557
<INVENTORY> 197,141
<CURRENT-ASSETS> 629,959
<PP&E> 428,272
<DEPRECIATION> 101,154
<TOTAL-ASSETS> 1,007,456
<CURRENT-LIABILITIES> 331,918
<BONDS> 0
0
0
<COMMON> 153
<OTHER-SE> 458,372
<TOTAL-LIABILITY-AND-EQUITY> 1,007,456
<SALES> 1,298,928
<TOTAL-REVENUES> 1,298,928
<CGS> 1,186,133
<TOTAL-COSTS> 1,186,133
<OTHER-EXPENSES> 3,138
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,229
<INCOME-PRETAX> 45,481
<INCOME-TAX> 5,468
<INCOME-CONTINUING> 40,013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,013
<EPS-PRIMARY> 0.95
<EPS-DILUTED> 0.90
</TABLE>
